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ANNA ■■ YOIJNGMAN 




V 

Book ^^ 

Copyright ^° 



COPYRIGHT DEPOSm 



The Economic Causes 
of Great Fortunes 



BY 



Anna Youngman, Ph. D. 



BANKERS 
PUBLISHING 
COMPANY 




NEW YORK 

THE BANKERS PUBLISHING CO. 

1909 



h 



'V 



^\^ 



Copyright 1909 

By the Bankers Publiahing Co. 

New York 



<^u A ,1.1^ 4^1'i.yiu^ fi^^ f^o^ 



-^ 



CONTENTS. 



Chapter I. — Introduction 1 

a. The method employed. 

h. The fortunes selected for special investigation, 

and the general considerations governing such 

selection. 
c. The reasons for treating the fortunes of the men 

of to-day from the standpoint of the group, 

rather than from that of the individual. 

Chapter II. — The Fortune of John 
Jacob Astor 7 

a. The fur-trade and foreign shipping. 
h. Investments in real estate. 

Chapter III. — The Fortune of Jay 
Gould 55 

fl. Early business undertakings. 

h. Operations on the Gold Exchange. 

c. Speculation in the stocks of the Erie. 

d. Investments in western railroads. 

e. The Western Union Telegraph Company and the 

Manhattan Elevated Railway. 

Chapter IV. — Group Fortunes: The 
"Standard Oil" and the "Morgan" 
Men 100 

a. The origin and growth of the "Standard Oil" 

group. 
h. The rise of the "Morgan" group. 
c. Probable future developments. 



PAGE 

Chapter V. — Personal and Non-Personal 
Factors Involved in Gain-getting. ... 143 

a. An analysis of several different forms of gain- 
getting (based upon the specific investigations 
that have been undertaken). 

h. The gains arising in the course of the general 
process of fortune accumulation. 

1. Non-personal factors conditioning such gain. 

2. Personal factors. 

c. Criticism directed against men of large fortunes. 

1. Its character. 

(Failure to see the importance of the non- 
jDcrsonal factors conditioning gain.) 

2. Misplaced condemnation. 

X. Large scale production. 
y. Dishonesty. 

Chapter VI. — The Social Service Ren- 
dered BY Owners of Great Fortunes. .170 

a. Vagueness of the concept of "social service." 
h. The relation of "social service" to individual 
gain. (No necessary connection between the 
two — gain may be made at the expense of the 
community.) 

c. The futility of attempts to establish a relation 

between the degree of social service on the one 
hand, and both the size of the reward and the 
amount of personal activity or personal abil- 
ity, on the other hand. 

d. The "justification" of large fortunes. 

(No validity in attempts to "justify" individual 
gain on theoretical grounds.) 

e. Social expediency and large fortunes. 



CHAPTER I. 

INTRODUCTION. 

AN examination of the causes of great for- 
JlIl tunes may be undertaken in either one of 
two ways. The analysis may be (1) im- 
personally theoretical, seeking onlj^ occasional 
corroboration by an appeal to the facts, or it may 
be based (2) upon a detailed examination of 
particular fortunes, conclusions being strictly 
deduced from a consideration of the facts pre- 
sented. 

The first method of procedure is apt to give 
rise to grave errors. Mistakes are likely to occur 
frequently, because of a failure to recognize the 
operation of certain factors, which, in the absence 
of a detailed study, are either unknown or else 
appear unworthy of notice. Furthermore, a 
theoretical analysis which makes an appeal to the 
facts for confirmation, instead of being based, in 
the first place, upon the facts furnished by a 
specific inquiry, presupposes an a 'priori judg- 
ment of what aspects of the question under dis- 
cussion are worthy of consideration. This judg- 
ment once formed, the facts are apt to be coerced, 
however unconsciously, to support the position 
taken. 



2 GREAT FORTUNES. 

The second method of investigation is con- 
ceived to be the more legitimate, although it has 
some obvious limitations. The most patent ob- 
jection is, of course, the difficulty of disentan- 
gling from a heterogeneous mass of material only 
such facts as appear to be of a causally relevant 
nature. There is always a danger that undue 
emphasis may be given to circumstances, which, 
although important in the single instance, have 
less significance for the general question bear- 
ing on the causes of the growth of large fortunes. 
However, by examining in detail a number of 
fortunes differing in respect to the time and the 
manner of acquisition, and by subsequently sub- 
jecting them to an unbiased analysis, any gen- 
eral results that may be deduced will have a 
degree of validity unattainable by the more im- 
personal method. In brief, a basis for theorizing 
will be afforded, which will be sound, just in so 
far as the preceding studies have been accurate, 
exhaustive, and well selected. 

It must, of course, be conceded that the ques- 
tion of selection calls for the exercise of consid- 
erable judgment; and if the fortunes examined 
do not represent sufficiently diverse types of ac- 
tivity, then the facts are likely to support a dis- 
torted theoretical conclusion of but limited ap- 
plication. The fortunes which have been selected 



INTRODUCTION. 3 

for examination in the following study, although 
few in number, represent a highly diversified 
range of economic activity, and they cover a 
period sufficiently lengthy to include the several 
phases of commercial and industrial development 
through which the United States has passed since 
the Revolutionary War. 

The fortune of John Jacob Astor, gained from 
trade and from land-speculations, is the typical 
American fortune of the pre-corporate regime} 
The Gould fortune is a product of the period that 
intervened between the close of Astor' s career 
and the distinctively industrial era of the present 
day. It was made chiefly by means of specula- 
tive investments in the securities of various rail- 
roads, and it is one of a number of fortunes sim- 
ilarly acquired, at a time when the railroads of 
the country were practically the only great pub- 
lic-service corporations in existence. It is not 
only representative of its time, however, but it 
offers certain unique and picturesque features 
incident to "high finance," which call for explana- 
tion in any study of great fortunes. Finally, 
the fortunes of the "Standard Oil" and the 
"Morgan" men, although originating generally 

iTo be sure, Astor's Fur Company was incorporated, but 
merely as a matter of form, since Astor owned the business en- 
tirely, with the exception of a few shares granted to his 
subordinates. 



4 GREAT FORTUNES. 

at an earlier period, present all the characteris- 
tics of the modern situation, in which industrial 
corporations vie with the railroads in their im- 
portance for purposes of speculation and of 
investment. 

In the days of John Jacob Astor, the growth 
of a great fortune could be studied in isolation, 
and the activities of its owner could be narrated 
almost without reference to the existence of liis 
contemporaries. With the exception of certain 
subordinates to whom he granted a minor inter- 
est, Astor did not have even a partner in his 
great fur company. As for his real-estate in- 
vestments, he would have been exceedingly loath 
to share with another the immense gains which 
came to him from that source. But even in the 
time of Jay Gould there had come about a 
change. Gould, individualist though he was, 
made his fortune under a corporate regime, and 
he was thereby compelled to identify himself 
more or less with those interested in the same 
corporate undertakings. To understand fully 
the activities of Gould, one must, for example, 
know somewhat of the career of James Fisk; and 
for a complete knowledge of Gould's later un- 
dertakings, it is essential to remember that he was 
supported by a small coterie of men, most of 
whom were directors of the Union Pacific at the 



INTRODUCTION. 5 

time of his entry into that road. However, his 
interests and those of his associates were confined 
almost exclusively to one field — railroads. It is 
not necessary to seek for ramifications of his 
interests into other fields, through the mediation 
of these lesser members of the group. It becomes 
possible, therefore, to gauge the extent of his 
wealth and influence, and to analyze the causes 
making for his personal gain, by a simple exam- 
ination of his individual operations. 

But of late years conditions have changed. As 
a result of the interrelations made possible under 
a highly- developed corporate system of business 
enterprise, the man of great fortune has come 
more and more to be regarded as but a member 
of a group of men having great fortunes. It is 
less than a quarter of a century since the idea of 
a group activity began to secure recognition; but 
today it has become possible to speak familiarly 
of the "Standard Oil" or of the "Morgan" men. 
More than that, the group has attained such im- 
portance that, to understand the nature and 
sources of an individual's gain, it is necessary to 
undertake an examination of the character and 
the activities of the group of which he is a mem- 
ber. It is still possible, of course, to trace the 
history of the way in which Mr. Rockefeller, for 
example, laid the foundation of his fortune in 



6 GREAT FORTUNES. 

the Standard Oil Company (although that has 
been done ad nauseam). But Mr. Rockefeller's 
Standard Oil holdings are but a part of the num- 
erous interests in which he, as a member of the 
so-called "Standard Oil" group, shares. It is, 
in fact, through group activity that he and many 
others, who are counted among the richest men 
of the country, are today enlarging their private 
fortunes, and the group should, therefore, re- 
ceive consideration in anj^ study attempting to 
explain the causes of the accumulations of men 
of great fortune. For that reason, it is proposed 
to treat the fortunes of the men of today from the 
standpoint of the group, rather than that of the 
individual, while the fortunes of John Jacob 
Astor and Jay Gould will be used to illustrate 
the individualistic methods of acquisition. 



CHAPTER II. 

THE FORTUNE OF JOHN JACOB 
ASTOR/ 



"^^THEN John Jacob Astor landed in 
America in the spring of 1784, he 
encountered a civiHzation industrially unique 
and wholly alien to his brief experience. 
Witness the anecdote that is told concern- 
ing his astonishment at being able to se- 
cure a position unhampered by the payments 
and regulations of apprenticeship." The lack 
of social restraints upon the freedom of produc- 
tion and exchange seemed, no doubt, peculiarly 
inviting to one who must have imbibed, even if 



iJohn Jacob Astor was born in Waldorf, Germany, in 1763, 
the son of a butcher. At the age of sixteen or seventeen he left 
home, working his way to the coast, whence he took ship for 
Engand. After four years spent in London with a firm of flute- 
and piano-makers, of which his brother was a member, he set 
sail for America, having accumulated money enough to pay for a 
passage in the steerage and to provide himself with a few addi- 
tional pounds sterling. 

For incidents of his early life cf. James Parton, Life of Astor, 
New York, 1865; Washington Irving, Astoria; J. t). McCabe, 
Great Fortunes and How They Were Made, 1871; Hunt's Mer- 
chants' Magazine, Vol XI, p. 153; W. O. Stoddard, Men of 
Achievement, 1901; W. W. Astor, Pall Mall, Vol. XVIII. 

sParton's Life of Astor (New York), 1865, 



8 GREAT FORTUNES. 

unconsciously, old-world ideas of privilege. Add 
to this that the country held numberless untested 
possibilities of wealth development, and it is not 
hard to predicate the pecuniary success of an 
individual such as John Jacob Astor, who could 
boast a more than ordinary amount of commer- 
cial astuteness. 

It is not to be inferred, however, that the 
country was in all respects industrially unex- 
ploited, nor that the fur trade and foreign ship- 
ping, the fields in which Astor was to lay the 
foundations of his fortune, were absolutely un- 
tried. Indeed, the fur-bearing regions of the 
continent had been tramped over long ere this by 
adventurous employees of the early French com- 
panies, by trained agents of the Hudson's Bay 
Company, and by resolute traders and trappers 
who were independent of all organized ventures. 
Moreover, before the war of the Revolution, the 
natural products of the colonies had given rise 
to a lucrative carrying- trade which showed indi- 
cations of a speedy revival after the Peace of 
Paris under the direction of Boston merchants 
of considerable wealth.^ But after all, the ex- 
ploitation of these two fields of commercial ac- 



sWeeden, Economic and Social History of New England, Vol. 
II, p. 8:31 ; cf. also MacPherson, On Commerce, Vol. IV, pp. 57, 
117, 195. 



JOHN JACOB ASTOR. 9 

tivity was only in its initial stages. In 1784, 
New York was as yet of secondary importance as 
a center of the American foreign trade, while 
the condition of the fur-trade is evidenced by the 
fact that the western part of New York state 
and even portions of Long Island were still pro- 
lific of peltries. 

That John Jacob Astor at the age of twenty 
should have come in contact with a loquacious 
countryman who impressed upon him the money- 
getting possibilities of the fur-trade, was a piece 
of rare good luck.^ The elements of fortune — 
even for the wholly penniless — were all there, 
though no doubt it required a laudable effort of 
the imagination for a young man so entirely ig- 
norant of the conditions prevailing in America 
to appraise them at their full value. To begin 
with, the fur-trader required only a minimum 
capital; as Astor's German acquaintance told 
him, with a basket of toys or even cakes, valuable 
furs could be bought on the wharves and in the 
markets of New York, which could be sold with 
advantage to resident merchants, or, if sent to 
London, disposed of at an advance of 400 or 500 
per cent.^ 

4Cf. references previously given to "Lives" of Astor. 

sParton, Life of John Jacob Astor (New York, 1865). Parton 
is unreliable, but the statement seems probable in the light of 
other evidence concerning the profits of the fur-trade. 



10 GREAT FORTUNES. 

Such extraordinary returns are the natural 
result of trading operations carried on between 
two civilizations having entirely different stand- 
ards of value. Both civilizations may conceiv- 
ably profit by these operations, but the greater 
part of the gain is very likely to accrue to one 
of them at the expense of the other. In the case 
of the white men and the Indians of North 
America, the gains arising from commercial in- 
tercourse were confined almost exclusively to the 
former, though, it must be confessed, their pecun- 
iary successes were often attended with severe 
personal hardship and occasional loss of life. At 
its inception the Indian trade was but slightly 
influenced by a trade-morality even of the mild- 
est sort, so that the ignorance of the Indian com- 
bined with his susceptibility to drink and finery 
delivered him over to the greater or less cupidity 
of the white man. An idea may be had of the 
conditions confronting fur-traders in the remote 
comparatively unworked regions of the country 
by consulting some of the schedules preserved 
by pioneers in the field.^ It is quite evident from 
tliese schedules that there must have been an 
opportunity for great profits in such exchanges. 

^Alexander Henry, who began his career as a fur-trader in 
1760, has left an account of his travels and adventures, in which 
he has embodied a list of the prices of goods bought from the 
Indians at Fort des Prairies: 



JOHN JACOB ASTOR. 11 

Indeed, the fact is patent, even though various 
incidental expenses connected with obtaining the 
skins and transporting them to market are not 



A gun 20 beaver skins 

A Stroud blanket 10 

A white blanket 8 

An ax (1 lb.) 3 

y2 pt. gunpowder 1 " " 

10 balls 1 

The principal profits, however, he says, came from the sale of 
knives, beads, flints, steels, awls, and other small articles. To- 
bacco, for which the Indians showed a decided preference, sold 
at the rate of one foot of Spencer's twist (a twist of black 
tobacco about an inch in diameter) for each beaver skin, while 
rum was dispensed at the rate of two beaver skins per bottle. 
Penny prints, such as are sold to children, were considered 
especially valuable as talismans, and Henry states that they 
were an exceedingly fertile source of profit, although he gives no 
exact information as to rates of exchange. (Alexander Henry, 
Travels and Adventures in Canada and the Indian Territories, 
ed. by James Bain [new ed., 1901], p. 320.) Bain thinks Astor 
conducted his trade in furs at Montreal under Henry's direction. 
Russell gives a schedule of the trade of the Hudson's Bay Co. 
in 1788. 

A common musket 10 beaver skins 

A pound of powder 2 " " 

4 pounds of shot 1 " " 

A hatchet 1 

6 knives 1 " " 

A pound of glass beads 2 " " 

A cloth, coat 6 " " 

A petticoat 5 " " 

A pound of snufp 1 " " 

Combs, looking-glasses, brandy, and other articles were ex- 
changed in proportion, Russell states rather indefinitely. More- 
over, in the exchange two otter skins and three martens were 
reckoned the equivalent of one beaver skin, whereas a single fine 
skin of either otter or marten was worth more than a beaver. 
Bancroft, History of the Northwest Coast, Vol. I, p. 459, quotes 
the statements of Russell made in his History of America, Vol. 
II, p. 263. 

2 



12 GREAT FORTUNES. 

estimated, while the prices at which they were 
eventually sold are not stated. However, some 
definite testimony on this head is afforded by 
Alexander Ross who, while connected with the 
Astorian venture, spent a winter in the interior 
(600 miles from the mouth of the Columbia Riv- 
er), in a region not previously invaded by trade. 
During the 188 days of his stay he procured 
1,550 beavers, besides other peltries estimated to 
be worth £2,250 in Canton, wliich averaged the 
company 5V2d. each, or £S5 sterling in all. Ross 
says : 

So anxious were ihcj'^ [i. e., the Indians] to trade and so fond 
of tobacco that one morning before breakfast I obtained 110 
skins for leaf tobacco at the rate of five leaves per skin, and at 
last when I had but one yard of white cotton remaining one of 
the chiefs gave me .-'!) j)rime beaver skins for itJ 

Enough has been said, perhaps, to illustrate 
the enormous profits arising out of such transac- 
tions with the Indians, although it must be re- 
membered that losses due to accidents in trans- 
port, Indian uprisings, and other unforeseen 
happenings had to be taken into account, while 
the salaries of subordinates, and the mainte- 
nance of trading-pobts were items of large ex- 
pense to the organized companies. 

^Alexander Ross, Adventures of the First Settlers on the 
Orecfon or Colvmhia River, IBlO-lfJ. Reprint by Thwaites of the 
London edition of 18'19, p. 158; Early Western Travels, edited by 
Reuben Gold Thwaites, Vol. VII, 1904. 



JOHN JACOB ASTOR. 13 

This, then, was the trade to which John Jacob 
Astor addressed himself upon his arrival in 
America. He engaged his services to a New 
York dealer who bought and exported peltries, 
and soon he was making trips to Montreal in the 
interests of his employer, gathering information 
as to the possibilities of the trade, and acquiring 
adroitness in dealing with the natives. The ac- 
counts concerning this early period of Astor' s 
life are meager, conflicting in details, and prone 
to substitute eulogy for facts. But it would 
probably be safe to say that by 1786 or there- 
abouts he had severed his connection with Mr. 
Bowne, his employer, and with a small stock in 
trade had established an independent business. 
He obtained his furs, apparently, not only from 
the Indians themselves, but from white trappers 
and from the occupants of farm-houses through- 
out New York state. ^ 

The actual expenses of such a trade were of 
course slight, and if connections could but be 
established with those markets where furs were 
in greatest demand, profits might rise to many 
times the original outlay. That John Jacob 
Astor should have thought of London as the 
goal of his operations — the market in which he 

sParton, Life of Astor; also, cf. other accounts of Astor's Y. '':=■ 
that have been cited. 



14 GREAT FORTUNES. 

could take advantage of the largest price discrep- 
ancies — is not altogether surprising, especially 
since the merchants of Montreal with whom he 
had come in contact all shipped their furs to 
London.'' Nevertheless, the energy and dispatch 
with which he put his plans into execution were 
indicative of a quite extraordinary enterprise. 
Very early in his career,^'' in fact, as soon as he 
had accumulated a sufficiently large stock of furs, 
and had saved money enough to pay for a pas- 
sage in the steerage, he set out for London with 
the purpose of forming connections there which 
would permit him to avail himself of the high 
prices of a European center of distribution. Evi- 
dently this venture was successful (though no 
direct information on the subject is to be got) 
for Astor's profits grew steadily until by 1794^^ 
he was in a position to devolve all but the man- 
agerial and financial work connected with his un- 
dertakings upon subordinates. ^- 

slndeed, the furs obtained in Montreal must perforce be 
(•hipped to London, as there was a law against exporting them 
from British possessions; cf. George Bryce, The Remarkable 
History of the Hudson's Bay Co., p. 193 (Toronto, 1900). 

loAs to the exact time accounts are conflicting and extremely 
unreliable. 

iiln 1794 Jay's Treaty resulted in the relinquishment of the 
trading-posts held by the British within the territory of the United 
States. 

i2"In a dozen years [he] had diverted some of the most 
profitable markets from his competitors and was at the head of 



JOHN JACOB ASTOR. 15 

About this time he bought a vessel of his own 
in which to sliip his furs to London. There, it is 
said, he heard of the trade of the East India Com- 
pany with China, and, in consequence, in 1800 
sent his first ship to Canton/^ Whether or no 
he had to go so far afield to learn the lucrative 
nature of the China trade, may well be matter 
for debate. An enterprising merchant and ship- 
per who had acquired a fair-sized working capital 
would have been very Kkely at that period, when 
considering the advisability of extending his 
trade, to have looked toward Canton, especially 
if he dealt in a commodity such as furs, which 
found an eager and extensive market in China. 

Weeden, discussing the revival of trade after 
peace had destroyed the profitable occupation of 
privateering, says : 

In 1783 they had begun to agitate the China trade in Salem. 
In 1784 the Connecticut men mooted the same question and asked 
for state aid in so large a venture, which the sturdy farmers in 
the legislature wisely declined. In the same year Captain John 
Green sailed direct in the ship Empress from New York for 
Canton. In 1785 Elias Hasket Derby cleared his ship Grand 



a business branching to Albany, Buffalo, Plattsburg, and Detroit." 
Cf. article on John Jacob Astor by William Waldorf Astor, 
Pall Mall, Vol. XVIII, p. 171. 

isParton, Life of John Jacob Astor (New York, 1865); also 
Pall Mall, Vol. XVIII. William Waldorf Astor writes that 
"before the end of the century he had, to quote his own expression, 
'a million dollars afloat,' which represented a fleet of a dozen 
vessels." 



16 GREAT FORTUNES. 

Turk, Captain West, from Salem for the Isle of France, and 
finally for Canton. i* 

Thomas H. Perkins, who had been trained by 
Derby, also became prominent in the China 
trade, his vessels going chiefly to the northwest 
coast of America and from there to China and 
Boston. For over fifty years (from 1792 on- 
wards) he was engaged in this trade, and it was 
claimed that in the early nineteenth century no 
private firm in the world transacted more busi- 
ness in the China trade.^^ Weeden says again: 

Like all grand commerce of the olden time, the China trade 
was a mighty round of small exchanges multiplied into the final 
freight of rich goods which included all the accumulated values 
that had gone before. 1 6 

Ginseng and specie were particularly in de- 
mand for the outward bound cargoes, while the 
ships came back laden with tea, coffee, muslins, 
silks, and other fine fabrics. The customary 
profits on muslins and calicoes from Calcutta in 
those early days were estimated at 100 per cent, 
and over.^^ 



i-tWeeden, Economic and Social History of New England, Vol. 
II, pp. 820, 821; cf. also MacPhcrson, On Commerce, Vol. IV, 
p. 57. 

i^Weeden, Economic and Social History of New England, Vol. 
II, p. 822. 

i676wZ., Vol. II, p. 824. 

i7ln 1789 four of Derby's ships were in Canton, and he 
recorded (1785-99) 125 voyages, 45 of which were either to India 
or to China. 



JOHN JACOB ASTOR. 17 

It is not surprising that the foreign carrying- 
trade should have taken this particular direction. 
No doubt enterprising American merchantmen 
would have engaged in it even before the Revo- 
lutionary War, had not the East India Company 
held a monopoly of the China trade. The goods 
imported into China were there exchanged for 
other goods which, brought back to Europe or to 
America, yielded a very handsome profit that of- 
fered decided inducements to a sliipper wishing 
to extend his operations. The "Empress of 
China," for instance, on her pioneer voyage to 
Canton in February, 1784, loaded chiefly with 
ginseng, obtained a return cargo whose sale net- 
ted a profit estimated at $30,000 — a sum exceed- 
ing 25 per cent, of the capital employed. ^^ As 
in the Indian trade, profits grew out of an ex- 
change between widely separated peoples of dif- 
ferent degrees of civilization and of diverse tastes. 
However, the resemblance probably goes no fur- 
ther, as the Chinese merchant was, no doubt, as 



In this year, 1789, fifteen American vessels entered the port 
of Canton; cf. MacPherson, On Commerce, Vol. IV, p. 195. 

In 1788 a Boston ship-master began to obtain furs from the 
Indians of the northwest coast which were carried to Canton and 
exchanged for Chinese produce. From 1799 to 1818, 108 American 
vessels were engaged in this trade, 15,000 sea-otter skins being 
collected and carried to Canton in 1803. (Bancroft, History of 
the Northwest Coast, Vol. I, p. 359.) 

i8"Life of Major Samuel Shaw, First Consul at Canton," 
Hunfs Merchants' Magazine, Vol. XVII I. 



18 GREAT FORTUNES. 

astute as the Yankee trader, though the latter 
could not fail to profit by the enhanced values 
of his importations, resulting from the creation of 
certain place utihties. The goods shipped to 
China, natural products such as furs, ginseng, 
and quicksilver, ^^ were exported from a country 
with a relatively small population, having a rela- 
tively slight demand for such commodities, to a 
densely populated district, where the peculiar 
tastes of the inhabitants afforded an eager mar- 
ket for them. Moreover, they came from a vir- 
gin country to a region whose natural resources 
had been thoroughly exploited, a circumstance 
which likewise tended greatly to enhance price 
discrepancies. In addition, the American trader 
profited by the introduction into his own country 
of the teas, silks, and fine fabrics of China for 
which there was an ever-growing demand with 
the increase of wealth and the development of 
luxurious tastes. He was also advantaged by 
the fact that China had practically a monopoly 
of all such commodities, so that the supply im- 
ported could to a certain extent be regulated to 
meet changes in demand. 

There is no available information concerning 
the exact nature and extent of Astor's Chinese 

isSandalwood also, obtained in the Sandwich Islands, was im- 
ported by American shippers. 



JOHN JACOB ASTOR. 19 

ventures. It must suffice that he sent quantities 
of furs to Canton, and brought back chests of 
tea in exchange. His tea ships were evidently 
the source of considerable profits, as it is said 
that his loss of over a million "^ in the Astorian 
venture was more than compensated by the prof- 
its from liis tea, which arrived safely despite the 
war with Great Britain.^^ Another circumstance 
that contrived to render the import trade profit- 
able was the method of payment of imposts. ^^ 

20Stated by Parton. William Waldorf Astor estimates his 
losses at $800,000. 

21 A table showing the impoi'ts of tea from China during a 
series of years will enable one to form an idea of the exceptional 
gains to be derived by a merchant with tea to sell in the years 
1810-15. 

Imports of Tea (in pounds) 

Millions Millions 

1804-5 T.6 1810-11 3.6 

1805-6 9.8 1811-13 3.4 

1806-7 9.4 1813-13 1.4 

1807-8 5.6 1813-15 1.4 

1808-9 1.5 1815-16 7.7 

1809-10 9.3 1816-17 9.3 

22McCabe, Great Fortunes and How They Were Made (1871), 
p. 77; also. Life of Moses Taylor, H%int's Merchants' Magazine, 
June, 1864, contains an incidental reference to the favorable eifects 
of the prevailing system of government credits. 

The American State Papers, Finance, Vol. V, p. 377, give some 
statistics concerning the amount of the duties on tea which are 
as follows: 

1801-13 1813-17 1817-34 

Bohea 13c 34c 13c 

Imperial gunpowder . . . 50c 

Hyson 33c 64c 40c 

A letter from a Boston merchant dated December, 1835 (cf. 
American State Papers, Finance, Vol. V. pp. 379, 280) also gives 



20 GREAT FORTUNES. 

The United States allowed nine, twelve, and in 
some cases eighteen months to elapse before the 
payment was demanded, and in the meantime 
the goods brought in could be sold at an advance 
over cost plus duties, and with the proceeds other 
ships could be sent to Canton and return before 
the duty-bonds were due. In this way, says 
McCabe, John Jacob Astor had free of interest 
from the government during a period of eighteen 
or twenty years over $5,000,000. The statement 
seems not improbable if it be remembered that 
the duties on tea were very high, and that they 
were increased in some cases 100 per cent, for the 
years 1812-17, as a result of the war. During 
this time, it should be borne in mind, John Jacob 
Astor is said to have been exceptionally fortunate 
in bringing in his ships. 

McCabe-^ quotes Francis in his Old Merchants 

valuable information concerning the schedule of duties and the 
relation of these to cost. "It so happens," he says, "that I can 
give you facts in place of speculation in answer to your inquiry 
as to the cost of tea in China. Within a week two of our ships 
have come direct from Canton." Imperial gunpowder, costing 
42 cents per pound, pays a duty of 50 cents; Hyson, costing 37 
cents, pays a duty of 40 cents; Souchong, costing 15 1^ cents, pays 
a duty of 95 cents; while Congo pays a duty equal to about 170 
per cent, of its cost. "The teas usually bought," writes the mer- 
chant, "cost us about 40 cents or 32 cents per pound and pay a 
duty of 40 cents." Since the percentage of duties to cost was 
in general considerably larger than this during the war period, 
the immense advantage to be obtained from deferring the pay- 
ment of such duties is obvious. 

23McCabe, Great Fortunes and How They Were Made (1871), 
pp. 76, 77. 



JOHN JACOB ASTOR. 21 

of New York because of a specific instance given 
by the latter of the way in wliich dilatory govern- 
mental regulations operated to the gain of the 
merchants. The illustration is suggestive, how- 
ever hypothetical the statistics may be. The 
Griswolds, owning the ship "Panama," start 
from New York with a cargo worth $200,000, 
$30,000 of which is invested in ginseng, spelter, 
lead, iron, etc., while the remainder consists of 
170,000 Spanish dollars. The ship lands at Can- 
ton and returns with a cargo of tea in exchange 
for the commodities carried thither. The tea 
upon importation pays a duty equal to twice its 
estimated value. If the cargo brought in is as- 
sumed to be worth $200,000, it will therefore pay 
a duty of $400,000, and will thereafter be valued 
at $600,000. Estimating that the profits from 
the sale of the tea will be fifty per cent, of the 
original cost of $200,000, the cargo then becomes 
worth $700,000. The tea will probably be sold 
to wholesale grocers soon after its arrival, the 
purchasers giving their notes due at the end of 
four or six months. These notes may be dis- 
counted by the shippers, and with the proceeds 
two more vessels with a cargo of $200,000 each 
may be sent to Canton, and return before the 
$400,000 debt due to the government has to be 
paid. 



22 GREAT FORTUNES. 

No doubt tliis is a somewhat exaggerated 
statement of the case, and it has further to be 
considered that decided dangers lurked in the sys- 
tem of deferred payments. It might, for in- 
stance, impel a too venturesome merchant to im- 
port excessive quantities of tea, thus flooding the 
market and depressing prices, with the result that 
his sales would not bring in a sufficient sum to en- 
able him to pay his indebtedness to the govern- 
ment, and he would consequently be forced into 
bankruptc}^ Indeed, there are to be found occa- 
sional unsubstantiated references to attempts of 
John Jacob Astor to steady the market by buy- 
ing up excess supplies of tea. He, no doubt, en- 
joyed the advantage of being able to carry his 
tea indefinitely, and thereby escaped in part the 
evils of price fluctuations. Very likely he may 
have profited by the facilities for purchase af- 
forded by low prices just as wealthy would-be 
investors to-day profit in times of panic by ob- 
taining bargains in securities. On the other hand, 
the merchants who were forced to sell in order to 
meet their payments were put in a position sim- 
ilar to that of speculators, who in case of finan- 
cial stress must sacrifice their holdings to meet 
current obHgations. However, there is but little 
basis in fact for the conjectures that have been 
advanced concerning Astor's operations in tea. 



JOHN JACOB ASTOR. 23 

It would merely seem from hints thrown out 
here and there that he must have pursued some 
such plan, although just how far he was enabled 
to influence the market at large by his operations, 
it is impossible to state. 

But John Jacob Astor enjoyed an advantage 
other than the ones inherent in the trade itself. 
He had not to play the part of an ordinary buy- 
er in the acquisition of goods for his outward- 
bound cargoes, at least in so far as those cargoes 
were composed of furs. His final profits were a 
compound of the profits of the fur-trader and 
the shipper of furs. The extent of the profits 
of the fur-trader have been suggested, at any 
rate, by certain schedules that have been previ- 
ously stated. Even allowing for the additional 
expenses that came with an extensive and more 
elaborate corporate form of organization, profits 
were still excessive.^^ Moreover, there were even 



24The following statistics were compiled by an Indian agent 
for the years 1815-30, at a time when furs had become scarcer 
and Indians more sophisticated. 

THE FUR TRADE OK THE MISSOURI AND ITS AVATERS INCLUDING THE 
ROCKY MOUNTAINS. 

Expenditures. 

20 clerks, 15 yrs., at $500 $ 150,000 

200 men, 15 yrs., at 150 450,000 

Merchandise 1,500,000 

Total $2,100,000 



24 GREAT FORTUNES. 

greater returns to be got by that trader who 
could send his skins directly to the principal Eu- 
ropean markets. John Jacob Astor, we are told, 
had established commercial relations with many 
parts of the world as early as 1800. What must 
then have been his profits a decade later, after 
he had organized the American Fur Company 
which was operating in a comparatively virgin 
field and yet was having its furs shipped to the 
foremost distributive centers ? 

Until the time that the American Fur Com- 
pany was chartered Astor had conducted his 
business without recourse to a formal organiza- 
tion of any sort, but as he pushed his operations 
farther west into the region of the Great Lakes, 
and met with the opposition of British corpora- 



24 — Continued. Returns. 

26,000 buffalo skins per yr. 15 yrs., at $3 $1,170,000 

25,000 lbs. beaver skin per year 15 yrs., at $4 per lb.. . 1,500,000 

4,000 otter skins per yr. 15 yrs., at $3 180,000 

12,000 coon skins per yr. 15 yrs., at 25c 45,000 

150,000 lbs. deer skin per yr. 15 yrs., at 33c per lb 743,.500 

37,500 nuiskrat skins per yr. 15 yrs., at 20c 112,500 

Total $3,750,000 

Profits 1,650,000 

Average annual expenditure $140,000 

Average annual returns 250,000 

Average annual profits 110,000 

— Senate Document No. 00, Tioenty-second Congress, First 
Session, p. ,53. 

The statistics are apparently general estimates, not compiled 
with reference to any particular company. 



JOHN JACOB ASTOR. 25 

tions, he evidently decided to give his business a 
more definite form. In 1808, therefore, he ap- 
plied for a charter from the state of New York 
for the American Fur Company (capital 
$1,000,000) — a general title designed to include 
all his operations. ^'^ The Mackinaw Company, 
a British concern which held the trade about the 
upper lakes and westward to the Mississippi, was 
a formidable competitor, but Astor in conjunc- 
tion with certain members of the North West 
Company bought it out (1811), and organized 
a new association, the South West Company, 
which included the British organization and the 
American Fur Company. Astor was to have a 
two-thirds interest in the trade of the United 
States with the understanding that all of it was 
to be his at the end of five years. However, this 
arrangement was never put into execution, be- 
cause shortly thereafter the War of 1812 broke 
out,^^ and the fur-trade lapsed into a state of 
demoralization for the time being. 

Meantime Astor was putting to the test a mas- 
terly scheme of commercial enterprise, daring but 



25Michigan Pioneer Collections. Vol. XI, p. 189; Pall Mall, 
Vol. XVIII, p. 184; H. M. Chittenden, History of the American 
Fur Trade of the Far West, Vol. I, p. 167. 

^^History of the American Fur Trade of the Far West, Vol. 
I, p. 310; Bancroft, History of the Northwest Coast, Vol. I, p. 
512. 



26 GREAT FORTUNES. 

plausible, requiring large expenditures but prom- 
ising extravagant returns. It was a scheme, in 
short, that could be attempted only by a man of 
large resources who could afford to wait years 
for his investment to repay the original outlay. 
The Astorian plan was a brilliant venture, but 
it seemed to be an equally safe one — one of those 
undertakings for which the way had been paved, 
but the possibilities left untested. The idea was 
to build a line of trading-posts up the Missouri 
and across the Rockies to the Columbia and on 
to the Pacific coast. St. Louis was to be the 
distributing-point for all posts east of the Rocky 
Mountains, while the fort to be built at the mouth 
of the Columbia and supplied by vessels sailing 
around Cape Horn was to serve as a center for 
the western posts. The furs stored at this latter 
point were to be taken by the supply vessels to 
China and there exchanged for a cargo of goods 
suited to the New York market. Incidentally it 
was hoped that considerable revenue would be de- 
rived from provisioning the Russian forts on the 
Alaskan coasts. To quote the rather picturesque 
language of Bancroft, which is strongly tainted 
by malice: 

It would indeed be a smooth glittering, golden round, furs 
from Astoria to Canton, teas, silks, and rich Asiatic merchandise 
to New York, then back again to the Columbia with beads, and 
bells, and blankets, guns, knives, tobacco, and rum.sT 



JOHN JACOB ASTOR. 27 

Bancroft estimates that in this ways furs could 
be taken to Cliina in one-half the ordinary time, 
and supplies brought by vessel at one-tenth the 
overland cost. 

In furtherance of this undertaking, the Pacific 
Fur Company was formed in 1810 with a capital 
of $200,000, divided into one hundred shares of 
which Astor held fifty. Hunt as his representa- 
tive and chief manager, five, the other partners, 
four each, while the remaining shares were left 
to the clerks. Astor was to furnish supplies up 
to the amount of $400,000 and to bear all the loss 
for the first five years, although he agreed to 
share the profits.^^ As has been said, the scheme 
looked eminently practical. This northwest coun- 
try had been explored by Lewis and Clark 
(1804-6)^'' and a company of St. Louis mer- 
chants had traded up the Missouri and Nebraska 
rivers and even built a fort west of the Rocky 
Mountains, from which, however, they had been 

2 7Bancroft, History of the Northwest Coast, Vol. II, p. 139. 

2sRoss, Adventures of the First Settlers on the Oregon or 
Columbia River, p. 39. 

2 9Turner, The Fur Trade in Winconsin, Johns Hopkins 
Studies, Ninth Series, p. 71, says that the idea of the Lewis and 
Clark expedition was proposed to Congress by Jefferson, as a 
means of fostei-ing the Indian trade. "Bearing in mind his [i. e. 
Jefferson's] instructions to this party that they should see whether 
the Oregon furs might not be shipped down the Missouri instead 
of passing around Cape Horn, and the relation of his early canal 
schemes to this design, we see he had conceived the idea of a 
transcontinental fur-trade wliich should center in Virginia." 



28 GREAT FORTUNES. 

driven by the Indians."'^ As for the trade from 
the Pacific coast to China, it has been ah'eady 
shown that it had been carried on with immense 
success since 1788. So early as 1792, at least 
twenty-five vessels, most of them from Boston, 
were on the western coast, and Ross estimated 
that they averaged a clear gain of 1,000 per cent, 
every second year. In view of the extraordinary 
statements of Ross concerning his trade with the 
Indians of the interior,"^ this estimate would ap- 
pear by no means excessive. 

The country that was to supply the Astorian 
settlement with furs was, then, not altogether 
unknown territory. Very probably it would 
have been worked ere this by the North West 
Company (indeed they had built several forts 
west of the Rocky Mountains) had it not been 
that Montreal, the base of supplies, was so far 
away, and they were prevented by the monopoly 
of the East India Company from shipping di- 
rectly to China. That Astor feared their possi- 
ble competition is evidenced by the fact that he 
offered them a one-third interest in his new en- 
terprise. His offer being refused, he did the next 
best thing — seduced some of their most experi- 

soGeorge Bryce, The Remarkable History of the Hudson's Bay 
Co., chap. xxii. 

3iCf. p. 13 of this volume. 



JOHN JACOB ASTOR. 29 

enced men into partnership with him by promis- 
ing them most generous terms.^" 

As has been shown, it was not in any single fea- 
ture that the Astorian scheme appeared original, 
although the fur-trade, at best, demanded adven- 
turous daring — a reaching-out into new fields. 
But, as a great co-ordinating scheme, the plan 
bore witness to the organizing ability and the 
grasp of the man who conceived it. Its aim was 
distinctly monopolistic, and if it had succeeded, 
it would have been a disastrous blow to Astor's 
rivals. With New York as an outlet for the east- 
ern posts, with Astoria as an outlet for the west- 
ern ones, and with St. Louis as the feeder for the 
middle territory, Astor would have been infinite- 
ly better equipped than rivals who had to send 
supplies by land, and conduct their operations 
with foreign countries from a single center. Ross, 
a Scotchman who went on the Astorian expedi- 
tion and afterward developed a bitter hostility 
to Astor, characterized the Pacific Fur Com- 
pany as 

that concern which proposed ta extend its grasping influence 
from ocean to ocean and which, to use the projector's own words, 
was to have annihilated the South Company, rivaled the North 
West Company, extinguished the Hudson's Bay Company, driven 



32Bancroft, History of the Northwest Coast, Vol. II, pp. 141, 
142; Washington Irving, Astoria, pp. 35, 36. 



30 GREAT FORTUNES. 

the Russians into the Frozen Ocean, and with the resources of 
China to have enriched America." 3 

The plan failed, but not because of any diffi- 
culties that could have been foreseen. The War 
of 1812 broke out, Astor's supply ship did not 
arrive on time, and it was feared a British man- 
of-war might appear any day and demand the 
surrender of the fort. The partners, therefore, 
sold out to a representative of the North West 
Company for $80,500.'"* This sum seems decid- 
edly insignificant, in view of the fact that Astor 
had spent over a million dollars to carry his plans 
into eflPect. There had been an overland expedi- 
tion to equip, and a party to be sent by sea, with 
two supply vessels to follow before any news of 
the first one could be had. The "Tonquin," the 
ship which conveyed some of the partners to As- 
toria, was blown up after captain and crew had 
been massacred by the Indians of the upper coast 
while on a trading expedition; and a ship carry- 
ing supplies was wrecked off the Sandwich Is- 

•■'sRoss, Adventures of the First Settlers on the Orecfon or 
Columbia River, p. 270. 

^•tChittenden, The History of the American Fur Trade of the 
Far West, Vol. T, chap, xii; Bancroft, History of the Northtoest 
'^oa.tt. Vol. TI, p. 229, notes 8 and 9. 

"Mr. Astor," says Ross, "thouo;ht he was cheated because the 
beaver on hand was sold at $2.00, and the otter at $0.50, when 
these skins were bringing $5.00 or $6.00 each at Canton." How- 
ever that may be, there were mutual recriminations of a more 
serious nature, the recital of which would not be at all pertinent 
to the present investigation. 



JOHN JACOB ASTOR. 81 

lands. The cargoes were insured, however, so that 
probably the worst result of these losses, finan- 
cially speaking, was the disheartening effect that 
they had on the men stationed at Astoria. An- 
other ship, moreover, after provisioning Astoria, 
had sailed northward to the Russian settlements 
and thence directly to China, the captain refus- 
ing to put in again at that post, although he had 
Hunt, the chief manager, aboard. This vessel 
carried furs costing $25,000 to Canton, which 
would at that time have sold for $150,000, the 
proceeds invested in nankeens bringing perhaps 
$300,000 in New York.^' No wonder, after such 
expenditures and with such profits in anticipa- 
tion, that Astor should have lamented the sale of 
his interests to the North West Company at 
any price they might have offered. 

The check given to this plan for the develop- 
ment of the northwestern trade by the failure of 
the Astorian scheme was effectual. It may seem 
strange that Astor did not renew liis attempts 
upon the conclusion of the war, but it ought to 
be remembered that the North West Company 
retained possession of Astoria, now Fort George, 
until August, 1818, and that during all this pe- 
riod, the northwest boundary was matter for dis- 

sBBancroft, History of the Northwest Coast, Vol. II, p. 220. 



32 GREAT FORTUNES. 

pute. In 1818 it was agreed that a settlement of 
the houndary question should be postponed for 
ten years,'*' during wliich time the northwest 
coast was to be open to subjects of both nations. 
In view of the uncertainty connected with the 
final disposition of this territory, as well as in 
view of the fact that the North West Company 
was now firmly intrenched in the region, it was 
not surprising that Astor should have definitely 
relinquished his plans. It should be remembered, 
too, that the North West Company boasted an 
organization superior to that of the American 
Fvir Company. Its men were highly trained, its 
working arrangements thoroughly perfected, and 
its dealings with the Indians subjected to definite 
rules and regulations. The way in which tliis 
company had conducted its commerce with the 
natives had tended to attach them to its interests, 
and whenever American traders encountered its 
competition it was apt to be to their eventual 
discomfiture. None knew better than Astor the 
extent of the competitive resources of the North 
West Company, and before attempting to carry 
the Columbian plan into effect, he had tried to 
secure the co-operation of these rivals. When 
he failed in that, he selected men from the North 

36lt was not finaUv settled till 184G. 



JOHN JACOB ASTOR. 38 

West Company to take charge of the undertak- 
ing, because he thought that they alone had the 
requisite experience and hardihood to make suc- 
cess possible. Their desertion, coupled with the 
presence in the field of the North West Company 
itself, meant that the American organization 
would have to engage, competitively speaking, in 
a campaign of offense under the direction of sub- 
ordinates less experienced than those in the em- 
ploy of the British companj^ Such considera- 
tions as these were, no doubt, conclusive in deter- 
mining Astor not to revive his western project. 

Thereafter, operations were generally confined 
to the middle west, but the North West Com- 
pany was paid in kind for the part it played in 
the enforced sale of Astoria. After the conclu- 
sion of the war, John Jacob Astor employed all 
his political influence to procure the passage of 
a bill excluding foreigners from participation in 
the fur-trade of the United States. He was suc- 
cessful in this attempt and in 1816 the North 
West Company was forced to relinquish certain 
lucrative posts south of the Canadian line. Astor 
immediately bought up all these posts very much 
at his own price,^^ and in the same year organized 

3 7 Chittenden, The History of the American Fur Trade of the 
Far West, Vol. I, pp. 310,' 311; Bancroft, The History of the 
Northwest Coast, Vol. I, p. 513; J. H. Lockwood, "Early Times 
and Events in Wisconsin," Wisconsin Historical Collections, Vol. 
IV, p. 103. 



34 GREAT FORTUNES. 

the American Fur ComiJany which combined 
these newly acquired possessions with those of 
the South West Company incorporated just be- 
fore the outbreak of the War of 1812. The inci- 
dent affords an ilhistration of one proHfic source 
of wealth to the man who is already rich: the 
ability to create and to take advantage of excep- 
tional opportunities to acquire property for less 
than it is worth. It is, perhaps, the same sort of 
tiling that occurs to-day when men of wealth slip 
into the control of corporations suffering a tem- 
porary financial embarrassment. It is again a 
case of forced sale; they get something for less 
than it is worth, because of the pressure that has 
been brought to bear upon those in possession. 
And in some instances, as is well known, the pur- 
chasers have themselves been instrumental in 
causing that pressure to be exerted. 

At first, the American Fur Company traded 
in the region of the Great Lakes, the upper Mis- 
sissippi, and a tract east of Lake Huron, with 
MackinaM^ as its base, but gradually it extended 
its territory, and in 1822 its western department 
was established with headquarters at St. Louis. 
This department was confined to the Missouri 
River and to the lower posts on tbe Mississippi 
and the Illinois. In 1826, it came into collision 
with the Columbia Fur Company, with wliich it 



JOHN JACOB ASTOR. 35 

effected a union in 1827, the name of the com- 
bination being changed to the North American 
Fur Company. The organization of the Colum- 
bia Company was left practically intact, it be- 
ing transformed into a sub-department having 
charge of the trade of the Missouri above the 
mouth of the Big Sioux.^^ 

For sy the, in a letter to Secretary of War 
Cass,^^ dated 1831, gives some interesting details 
concerning the trade of the region dominated by 
the North American Company. The traders 
supplied the Indians in the autumn with goods 
on credit, before the hunting season began. As 
possibly not more than half the debts thus con- 
tracted were made good, the Indians were forced 
to pay twice the price in skins that they would 
have had to pay in the spring when provided with 
furs. The Sauk and Fox Indians (population 
about 6,000), wrote Forsythe, had become so 
entirely dependent upon the traders for their 
winter supplies, that they would have literally 
starved without them. Consequently, they were 
forced to make their purchases in the autumn, 



ssChittenden, The History of the American Fur Trade of the 
Far West; cf. chapters dealing with the North American Fui* 
Company in Vol. I. 

39Cf. Chittenden, Vol. Ill, p. 936, for a letter from Thomas 
Forsythe to Lewis Cass, Secretary of War. [From the Manu- 
script Department of the State Historical Society of Wisconsin.] 



36 GREAT FORTUNES. 

paying exorbitant prices for the most necessary 
articles.^*^ If debts such as these were eventually 
discharged, the trader made a profit approxi- 
mating 100 per cent.; but assuming that onty a 
half or even a third of the debts were collected, 
the gains were still of a size to justifj^ suspicions 
of exploitation. Certainly it was a master-stroke 
to divert the Indians from the varied activities 
which made of them a self-sufficing people; in- 
duce them to become fur-trapping specialists for 
the benefit of the white man; and then purchase 

4oThe following is an estimate of certain transactions, serving 
to show the profits of the trader under ordinary conditions: 

The Indian takes credit in the autumn for 

A 3-point blanket at ^10.00 

A rifle gun 30.00 

A pound of gunpowder 4.00 

f^44.00 
A S-point blanket will cost in England say 16s. 

A blanket at 100 per cent $ 3.52 

A rifle gun (at St. Louis) 12.00-13.00 

A pound of gunpowder 0.20 

Ji516.72 
25 per cent, for expenses 4.18 

$20.90 
From Forsythe's letter to Cass, Cliittenden, Vol. IV, p. 926. 

The trader took for a dollar a large buckskin, weighing per- 
haps six pounds, or two doeskins, four muskrats, four or five 
raccoons or allowed the Indian three dollars for an otter skin, 
and two dollars for one pound of beaver. 

Turner, Johns Hopkins Shidifs, No. 9, states that the system 
of credits dates back to the French period. Cf. also American 
State Papers, Indian Affairs, Vol. II, pp. 64-66. 



JOHN JACOB ASTOK. 37 

their furs on credit, at prices based upon a knowl- 
edge of their superinduced economic dependence. 

Turner says : 

The credit system left the Indians at the mercy of the trader 
when one nation monopolized the field and it compelled them to 
espouse the cause of one or other when two nations contended for 
supremacy over their territory. At the same time it rendered the 
trade peculiarly adapted to monopoly, for when rivals competed 
the trade was demoralized and the Indian frequently sold to a 
new trader the furs which he had pledged in advance for the 
goods of another. When the American Fur Company gained 
control, they systematized matters, so that there was no competi- 
tion between their own agents, and private dealers cut into their 
trade but little for some years. 

Indeed, the North American Fur Compaii}'^ was 
recognized as being "the monopolj^" — the organ- 
ization with which every individual or group of 
individuals attempting to operate independently 
must expect to cope. It was not that the field 
was by any means fully covered, but Astor's com- 
pany operated over a sufficiently extensive region 
with sufficiently large resources to enable it to 
employ against its rivals every device known to 
monopolistic competition. The nature of the fur- 
trade was such that, as regarded actual opera- 
tions in the field, the individual trader was fre- 
quently at a positive advantage in a given lo- 
cahty. In his direct dealings with the Indians 
there was no reason why he should not make as 
good a bargain as another man, and when he was 



38 GREAT FORTUNES. 

able to dispense rum (wliich he could more eas- 
ily smuggle into the Indian country than could 
a prominent corporation) he was sure to get the 
very best of the trade/ ^ 

But the North American Fur Company had 
that never-failing resource of an extended mon- 
opoly — it could change its schedule of prices to 
meet the exigencies of the situation. Chittenden 
says: 

[It did] very much as [does] the Standard Oil Company 
to-day [which] crushes any rival enterprise that may dare to 
show its head in any part of the United States. . . . Carte 
blanche to the clerlis simply meant that they might pay the 
Indians any price, however high, for furs, and might make use of 
any amount of liquor that was necessary to secure the trade.42 

Naturally, persons operating vi^ithin a limited 
territory could not withstand such an opposition 

4iThe importation of liquor into the Indian coimtry was abso- 
lutely forbidden in 1S33, although the American Fur Company 
pleaded to use it in the territory of its foreign rivals. 

■t^Chittenden, Vol. 1, p. 353; Childs, Wisconsin Historical Col- 
lections, Vol. IV, p. 1.56; White, Michigan Pioneer Collections, 
Vol. XI, p. 180. 

John Johnston in a letter to his sister from Fond du Lac, 
August 27, 1833, says that the Indians whom he told that he was 
conducting an expedition in opposition to the American Fur Com- 
panj% "seemed pleased at the thought of opposition, but the 
'Company,' they said, had used threats where milder means failed 
to deter them from encouraging new-comers" (Smithsonian, 
Schoolcraft Papers). 

In another letter from Leech Lake, November 4, 1833, John- 
ston writes that although the Indians of the region kill animals 
whose furs amount to 100 or 130 packs, weighing from eighty to 
ninety pounds each, the opposition traders have never left the 
country with more than five or at most eight packs (Smithsonian, 
Schoolcraft Papers). 



JOHN JACOB ASTOR. 89 

which might continue for an indefinitely long pe- 
riod without serious injury to the larger organi- 
zation. It is just this sort of competition that 
causes the greatest amount of irritation to-day 
under a more highly developed industrial organi- 
zation. It causes irritation, because it is evi- 
dence of an advantage due to size rather than 
efficiency. From the nature of the case the fur- 
trade did not permit of an excessively complex 
organization, as within any particular region the 
methods of doing business were much the same; 
it was a case of barter with simple people whose 
ignorance put them quite outside the pale of eco- 
nomic generalizations on the subject of exchange. 
The North American Fur Company was not, 
then, a highly integrated industrial macliine 
whose efficiency and economy of operation of- 
fered justification for the disappearance of less 
fit organizations. It simply engrossed the busi- 
ness of other concerns because of its greater re- 
sources — a case of acquisition, pure and simple, 
since it introduced no innovations when once in- 
stalled in the place of its rivals. 

But price inequalities were not the only effi- 
cient factors in establishing the Astor monopoly. 
Competition could be overborne by physical ex- 
pedients as well; and it was. Force and fraud 
were the weapons of all parties, but naturally 



40 GREAT FORTUNES. 

they were weapons that could be wielded more 
effectively by a large corporation than by pri- 
vate individuals. It is not surprising that blood- 
shed, even murder, should figure in the competi- 
tive annals of the fur-trade. There was no ef- 
fective police control save such as the trading 
companies themselves tried to exercise. The sub- 
ordinates had been trained to habits of strife by 
their mode of life and for them the contest was 
sometimes a primitive struggle in which the eco- 
nomic interests involved remained very obscure. 
None the less, it was an effective mode of aggran- 
dizement, redounding to the enrichment of men 
such as Astor who, detached from intimate con- 
nection with such affairs, would no doubt have 
condemned these methods in their cruder mani- 
festations. They were, however, the natural con- 
comitants of competition unrestrained by legal 
authority, and as such they come within the range 
of economic interest. 

Another reason why competition was so disas- 
trous was perhaps because of the fact that the 
risks of loss were thrown upon the company trad- 
ers. The goods were furnished by Astor, at a 
fixed advance upon costs and charges, to the vari- 
ous distributing posts of the interior.^^ Here the 

43"None of the traders became wealthy, Astor's company 
absorbed the profits. It required its clerks or factors to pay an 



JOHN JACOB ASTOR. 41 

outfits were made up and there was a second reg- 
ular advance. The chances of loss therefore all 
fell upon the trader and sometimes he must needs 
resort to desperate expedients, if he would come 
out with any profits. Not only did the company 
throw the risks upon individuals, but it has been 
said with a certain amount of justice, that it left 
to other men and other companies the task of 
opening up new regions, which it could after- 
ward enter with perfect assurance that its supe- 
rior resources would eventually enable it to take 
the field. Such a conservative policy is, of course, 
in interesting contrast ^vith John Jacob Astor's 



advance of 81 1^ per cent, on the sterling cost of the blankets, 
strouds, and other English goods in order to cover the costs of 
importation and the expense of transportation from New York to 
Mackinaw. Articles purchased in New York were charged with 
15 1-3 per cent, advance for transportation and each class of pur- 
chasers was charged with :33 1-3 per cent, advance as profit on 
the aggregate amount." "Schoolcraft Report," Senate Document, 
No. 90, T'wenty-second Conc/ress, First Session, p. 42. 

Cf. also a letter of John Johnston to his sister from Sault Ste. 
Marie, July 33, 1833. (Smithsonian, Schoolcraft Papers.) John- 
ston says: "The Eastern merchants furnish goods, merchandise 
and all necessary articles for trade at a certain percentage, with 
the privilege of having the first refusal of the furs obtained." The 
independent trader, Johnston thought, could make a fair profit, 
"but," he writes, "when individuals or companies were interested 
with the company [i. e., the company furnishing supplies] in 
place of 33 1-3 per cent, they charged 10 per cent, and received 
one-half the profits made on outfits and on receipt of the furs 
generally gave what they thought proper." At the outfitting 
posts he thinks there is scarcely any competition, the trader being 
compelled to take the merchandise at exorbitant charges. "To 
obtain and pay for goods and barely obtain a livelihood the whole 
weight, extortion, fraud, and deceit falls on the Indians." 



42 GREAT FORTUNES. 

early ventures. Then, he chose that field which 
seemed to offer the best chance of gain, and he 
srladly ran the risks involved for the sake of the 
large returns he might secure. But for a com- 
pany covering a great territory whose work was 
done by subordinates, matters were quite other- 
wise. It was possible to estimate one year with 
another the chances of gain or loss, and to make 
advances to the traders on the basis of such esti- 
mates. The position of the trader was somewhat 
analogous to that of the Indian; he was for the 
time dependent unon the supplies offered him by 
the North American Fur Company and he must 
perforce accept them upon the terms granted by 
the company. Judging from the usual penniless 
condition of the trader, the American Fur Com- 
pany must have gained considerably more than it 
would have gained had it not shifted the risks. 

By 1834, Astor's fur interests had become of 
slight moment in comparison with his immense 
real estate holdings, and he was, moreover, get- 
ting too old for active participation in the work 
of direction. Consequently, in the j'^ear named 
he sold out his interests in tlie Northern Depart- 
ment of the American Fur Companv to Ramsay 
Crooks and his associates, while the western de- 
partment was taken over by Pratte, Chouteau 
& Company, of St. Louis. Chittenden suggests 



JOHN JACOB ASTOR. 43 

that tliis move may have been dictated by certain 
purely economic considerations which do credit 
to his business astuteness. In proof, he cites a 
statement in a letter from Astor written from 
London the summer before the sale of liis inter- 
ests: "I much fear," he writes, "beaver will not 
sell well very soon unless very fine. It appears 
that they make hats of silk instead of beaver." 
But it was probably not from the point of view 
of demand alone that the fur-trade showed signs 
of decline. The supply of furs was also becom- 
ing scarcer and the expenses connected with the 
trade were increasing as it became necessary to 
push the trading-posts farther west. William B. 
Astor, writing to the Secretary of War in re- 
sponse to inquiries concerning the state of trade, 
says: 

On the frontiers the deer and other large animals have nearly 
disappeared, and in that region a great reduction is also visible 
in the number of those which are valuable for their fur. But in 
what may more properly be called "the Indian country" there is 
but little diminution of late years, and what the advance of the 
whites annually takes away is almost made good by the extension 
of our trading-posts, more particularly toward the Rocky Moun- 
tains; so that if we have less of one thing, we have more of 
another, and the annual value of our aggregate returns is pretty 
much the same.** 

It will be noticed that William Astor's state- 
ment contains several reservations. He alleges 

4iSenate Document, No. 90, Twenty-second Congress, First 
Session, p. 77. 

4 



44 GREAT FORTUNES. 

that the trade is "ahnost" made good, and the 
value of the a^^regate returns he affirms to be 
"pretty much the same." 

Schoolcraft writing in 1836 says of northern 
Michigan : 

The value of the fur-trade in this portion of the country is 
one of questionable character, at the present era. Large sums 
have formerly been made as well as lost in its prosecution. But 
more than nine-tenths of the whole avails of this trade have been 
sent to seaboard or foreign markets and have not enriched the 
resident inhabitants. This trade is yearly diminishing and it may 
perhaps be added, the sooner it is extinct and both the white men 
and Indians employ themselves in regular industry the better.*"' 

It is evident from the foregoinjsf statements 
that the country furnishing the American Fur 
Company with the main portion of its supplies 
was becoming rapidly populated and therefore 
unfit territory for the hunter. Moreover, the re- 
gion toward the mountains could only be ex- 
ploited at an increased expense, and in the face 

45ln the Appendix of Washington Irving's Astoria (Philadel- 
phia ed., 1873), p. 640, appears an article entitled, "Notices of the 
Present State of the Fur-Trade Chiefly Extracted from an Article 
Published in Silliman's Magazine for June, 1834." It is there 
stated that "it appears that the fur-trade must henceforward 
decline. The advanced state of geographical science shows that 
no new countries remain to be explored. In North America the 
animals are slowly decreasing from the persevering efforts and the 
indiscriminate slaughter practised by the hunters and by the 
appropriation to the uses of man of those forests and rivers 
which have afforded them food and protection. They recede with 
the aborigines before the tide of civilization, but a diminished 
supply will remain in the mountains and uncultivated tracts of 
this and other countries, if the aviditj^ of the hunter can be 
restrained within proper limitations." 



JOHN JACOB ASTOR. 45 

of a competition which was practically non-exist- 
ent for the Astor interests in the middle west. If 
John Jacob Astor were cognizant of all these 
facts, they were no doubt a more potent influence 
than old ap-e in effecting his withdrawal from the 
trade. The chances are that he, in common with 
many men of large fortune, was just as eager 
to scent signs of decay as he was quick to de- 
tect evidences of potential prosperity; just as 
opportune in withdrawing from a declining ven- 
ture, as timely in undertaking any new enter- 
prise that promised growth. 

II. 

Thus far only the trading ventures of John 
Jacob Astor have been discussed. But it is 
not therefore to be inferred that they were the sole 
species of gain-getting Mdth which Astor was 
identified. In fact, it is well known that the re- 
turns derived from trade were quantitatively a 
comparatively insignificant portion of the great 
fortune which he transmitted to his descendants, 
the bulk of that fortune being derived from real- 
estate investments in and around New York 
City. Nevertheless, the profits that grew out of 
Astor's early operations in the fur-trade and in 
foreign shipping afforded the means necessary 
for embarkation upon his policy of land invest- 



46 GREAT FORTUNES. 

ment. Consequently, the initial stages in the de- 
velopment of his trading interests gain added sig- 
nificance as the indispensable antecedents of a 
later era of bewilderingly rapid expansion of 
wealth. 

As early as 1800 Astor adopted the policy of 
utihzing his mercantile gains in the purchase of 
land just beyond the city limits. He gradually 
sold this land as its price advanced, in order that 
more extensive tracts somewhat farther out might 
be bought with the proceeds. Parton tells a 
story that serves to illustrate his methods. In 
1810, it is said, Astor sold a lot near Wall Street 
for $8,000 — a sale highly pleasing to the pur- 
chaser, who averred that in a few years it would 
be worth $12,000. "Yes," said Astor, "but with 
the $8,000 I will buy eighty lots above Canal 
Street, and by that time my lots will be worth 
$80,000." 

It was somewhat prior to the date of this pru- 
dent sale that Astor bought up the rights of suc- 
cession to certain lands in Putnam County*^ — a 
purchase destined to bring his name into rather 



46Cf. Parton, Life of John Jacob Astor. Cf. also, Niles' Reg- 
ister, February 27, 1819; June 7, 1828; March 20, 1830; June '2Q, 
1830. Cf. also, the case of Jackson vs. Carver, Circuit Court of 
the United States for the Southern District of New York. Re- 
ported by E. V. Sparhawk for the Neic York American,. Pub- 
lisher, Elam Bliss, New York, 1837. 



JOHN JACOB ASTOR. 47 

unpleasant repute. At the outbreak of the Revo- 
lutionary War about one-third of the lands in 
Putnam County had been held by Roger and 
Mary Morris, but, as they were loyalists, their 
holdings had been declared attainted, and had been 
taken over by the state. In some way, John Ja- 
cob Astor learned that the Morrises had possessed 
only a life-interest in the property, and that upon 
their death their heirs could still inherit it, the at- 
tainder not operating to divest the latter of their 
rights of succession. Astor thereupon purchased 
the rights of the heirs (1809) for the sum of 
$100,000. At the time about seven hundred fam- 
ilies were settled on the property, residing there 
under titles given them by the state, and quite ig- 
norant of the fact that they were in imminent 
danger of dispossession. Some years later, there 
was great consternation when Astor made known 
his claims, and the state legislature at once ap- 
pointed commissioners to inquire into the matter 
and see what could be done. At that period the 
lands in dispute were conceded to be worth $667,- 
000, but Astor's offer to settle with the state for 
$300,000 was nevertheless refused. Thereupon, 
negotiations were dropped, not to be renewed 
until 1818. Roger Morris had then been some 
time dead, and his widow was advanced in years 
and very feeble. Consequently, it was evident 



48 GREAT FORTUNES. 

that the ownership of their former estate would 
soon vest in the purchaser of the rights of suc- 
cession. The matter of a settlement was again 
agitated, and this time Astor offered to take 
$300,000 with interest for the four years that 
had elapsed since his first offer. But once more 
he met with a refusal, and no further action was 
taken until 1827, when the legislature enacted a 
law which provided that Astor should be offered 
a certain price for his claims, if, within thirty- 
days, he executed a deed of conveyance in fee sim- 
ple to the state, with a warranty against the 
claims of the Morris heirs.^" However, before he 
could receive any part of the sum agreed upon, 
he must obtain a judgment of the United States 
Supreme Court in favor of his title. 

In 1830, Astor's claims were sustained by a de- 
cision of the Supreme Court in the first one of 
five suits, wliich, it had been arranged, should be 
prosecuted to a final judgment. It had also been 
agreed that, if three of these suits should be de- 
cided in his favor, he was to receive from the 
state $450,000 in payment of his rights, subject 
to a deduction of $200,000, in case the court held 
that buildings and improvements did not go 
with the ownership of the land in dispute. In 

47Marv Morris had died before this last-named date. 



JOHN JACOB ASTOR. 49 

June, 1830, a third verdict was rendered which 
meant victory for Astor. He received the full 
amount of $450,000, with interest from April, 
1827, for a property wliich by that time had at- 
tained a valuation of $1,500,000. The sturdiness 
with which tliis claim was pushed to a successful 
issue in the face of vituperation shows the char- 
acter of the man. Judging from such evidence, it 
would certainly seem that he was devoid of those 
non-commercial and extra-legal standards of 
right-dealing which hinder many men in their 
advance toward fortune.^^ The incident obvious- 
ly brings out traits of disposition which have un- 
doubtedly been important factors in the acquisi- 
tion of wealth by individuals such as he. 

During the War of 1812 Astor loaned large 
sums on real estate security and had numerous 
opportunities to foreclose the mortgages thus ac- 

48 In one of the early suits that came to trial in the United 
States District Court for the Southern District of New York 
(Jackson vs. Carver, 1827,), the case for the tenants holding under 
the State was argued by Webstei", who made a straight appeal 
to the prejudices of his hearers, since he had a very weak legal 
defense. "The lands to be affected by a verdict in this case were 
held as a patrimony by the defendants. They had purchased them 
from the original patentee; they had labored for years to 
improve them. The rugged hills had grown green under their 
cultivation before a question was raised as to the integrity of 
their titles. They have grown with the lands around them and 
they have a right to retain them until a legal claimant comes to 
turn them out of possession. And unless the testimony upon 
which that individual founds his claim is as clear as possible it is 
your duty to reject his title and retain the lands in the hands in 
which they now are." 



50 GREAT FORTUNES. 

quired under conditions most favorable to him- 
self. Likewise, during the panic of 1837, when 
real estate was a drug on the market, he reaped 
an unprecedented harvest. At that time he is 
said to have appeared as a complainant in some 
sixty different suits, in nearly every case obtain- 
ing valuable properties at absurdly low prices. 

But it was not only during periods of financial 
distress that Astor secured extraordinary bar- 
gains. His ability to diagnose probable future 
developments enabled liim at all times to buy for 
insignificant sums unimproved or remote prop- 
erties, which later came to be valued at many 
times the prices originally paid for them.^^ For 
instance, Wilham Waldorf Astor says, when 
speaking of his great-grandfather's investments 
in real estate: 

isFor instance, $3,000 is said to have been the purchase price 
of a block in Harlem worth S1,000,000 to-day. Numerous lots on 
lower Broadway, bought at various times for $300 or $300, are 
now estimated "to be worth from $300,000 to $400,000. An East 
Side farm that cost Astor $30,000 has a present-day valuation of 
$8,000,000. For $75,000 he purchased one-half of Governor 
Clinton's Greenwich estate. Later Clinton's son-in-law borrowed 
money of Astor on the security of real estate, which was eventu- 
ally taken over by the latter for non-payment of debt. Nearly 
two-thirds of the Clinton property thus came into possession of 
the Astor family, which to-day, it is estimated, derives a yearly 
income of $500,000 from the buildings erected upon it. 

These details are taken quite uncritically from an article by 
Burton Hendrick in . McChire's Magazine, April, 1905. There 
seems no reason for doubting their substantial truth, however, 
and they gain added credence in the light of the statement made 
by William Waldorf Astor in an article in the Fall Mall Magazine, 
Vol. XVI II. 



JOHN JACOB ASTOR. 51 

These purchases were made with such judgment in the line 
of approaching expansion as frequently to be sold again after a 
few years for double or treble what he paid for them. One of 
these farms purchased in 1811 for $900 is now worth, with its 
improvements, $1,400,000.50 

A discussion of the immense gains derived by 
John Jacob Astor from land investments must 
not lose sight of the fact that those investments 
were made under peculiarly propitious circum- 
stances. They were begun when the land was 
young and relatively undeveloped, and they per- 
sisted during a period of extraordinary growth — 
a period during which New York was assuming 
ever greater importance as the cormnercial center 
of a country whose trade and industry were ad- 
vancing by leaps and bounds. The rapid appre- 
ciation of land-values which took place could 
hardly have occurred in an older community, 
where conditions are more stable and develop- 
ment progresses at a steadier pace. Moreover, 
in an old country there is not the same tendency 
to sudden shifts of the commercial centre of grav- 
ity, as there is in a new one, whose resources are 
being continually developed, and whose facilities 
for transport are being improved. For instance, 
the completion of the Erie Canal in 1825 at once 
threw a large part of the western trade, which had 

^oPall Mall Magazine, Vol. XVIII. 



52 



GREAT FORTUNES. 



formerly gone through Baltimore and Philadel- 
phia, toward New York; and, in addition, it led 
to an increase in the amount of products carried, 
since it so cheapened the cost of transportation as 
to bring new lands toward the northwest into the 
market.'^ ^ There would, of course, be every reason 
to expect a rapid augmentation of the population, 
trade, and land values of New York City, as a 
result of these changes. The statistics of growth 
of the period from 1820 to 1850 are indeed aston- 
ishing,^" and it is not surprising, in the light of 



siAndrews, Report on the Colonial and Lake Trade, 1852, pp. 
275, 276. 

•J2Statistics showing the amount of the imports and exports of 
New York City for a series of years bear excellent witness to its 
unusual growth as a center of foreign shipping, and these statistics 
are especially significant when compared with the figures for 
Boston and Philadelphiii, noth of which cities at one time excelled 
New York in the magnitude of their foreign shipments. The 
value of the imports into Boston, Philadelphia, and New York for 
the period from 1820 to 1850, are as follows: 

Boston. Philadelphia. New York. 

1820 $8,150,000 $26,020,000 

1830 9,520,000 38,650,000 

1840 $14,820,000 8,460,000 60,060,000 

1850 28,650,000 12,060,000 116,660,000 

The value of the exports are: 

Boston. Philadelphia. New York. 

1820 $5,740,000 $11,760,000 

1830 4,290,000 17,660,000 

1840 $8,230,000 6,820,000 32,400,000 

1850 9,140,000 4,500,000 47,580,000 

The population of the citv grew during this period from 
123,700 in 1820 to 515,300 in 1850. 



JOHN JACOB ASTOR. 53 

the development that took place, that John Jacob 
Astor who began to invest in real estate in 1800, 
when New York was little more than a good- 
sized town, should have died seized of holdings 
valued at from $18,000,000 to $20,000,000.'^ 

In conclusion, it should be said that informa- 
tion regarding the nature and extent of John 
Jacob Astor's real-estate holdings is very scanty, 
and frequently of doubtful authenticity. The 
tax records of New York City throw no light on 



Statistics showing the increase in vahie of the real and per- 
sonal estate held within New York City are as follows: 

1824 $83,070,000 

1830 125,280,000 

1840 252,230,000 

1850 286,080,000 

These figures are, however, practically worthless for purposes 
of comparison, 9,s the methods of valuation varied widely from 
year to year. Moreover, the increase in the extent of the city 
lands is not known, and consequently there are no means of esti- 
mating the amount of the "unearned increment" accruing to a 
fixed area during this period. Then, too, personal property as 
well as realty is included in the estimates. Cf. Andrews, Report 
on the Colonial and Lake Trade (1852), pp. 282-88. 

5 3Having acquired an immense landed estate, it was no part of 
Astor's purpose to make all the improvements upon it himself. 
He frequently rented out lands for twenty-one-year periods upon 
a net basis of 5 or 6 per cent., leaving to the tenants the erection 
of dwellings, payment of taxes, and making of repairs, the build- 
ings and other improvements to become the property of the owner 
of the land uj^on the expiration of the lease. In consequence of 
the hard terms exacted^ large blocks of land, it is said, were left 
vacant or else covered with the flimsiest sort of structures. Cf. 
Burton Hendrick, "The Astor Fortune," McClure's Magazine, 
April, 1905. 



54> GREAT FORTUNES. 

the subject,'"'* and no definite knowledge is to be 
got from a study of Astor's will, since, after 
making various minor bequests, chiefly of land, 
he devises the rest of his property without further 
specification to his son, William B. Astor.^^ De- 
tailed information is therefore lamentably lack- 
ing, but the facts that are obtainable will, it is 
thought, prove sufficient to furnish material for 
certain broad generalizations, and to afford the 
data necessary for purposes of comparison with 
other phases of Astor's activity. 

5*The tax records of the city of New York give no information 
concerning the ownership of the parcels of real estate assessed. 
The president of the Board of Tax Commissioners of New York 
City (Borough of Manhattan) thinks that the only way to obtain 
even a partial knowledge of the extent of the real-estate holdings 
of John Jacob Astor is to undertake an elaborate search through 
the records in the County Register's otRce. 

ssParton, Life of John Jacob Astor. to which is appended 
a copy of his will. The only investments mentioned in the will 
other than those in real estate are as follows: $100,000 in New 
York City 5 per cent, bonds; $50,000 in New Haven 5^^ per cent, 
bonds; certain sums deposited in the New York Life Insurance 
and Trust Co.; 500 shares of the capital stock of the Bank of 
North America; 1,000 shares of the Manhattan Co.; 1,000 shares 
of the capital stock of the Merchants' Bank; 1,604 shares of the 
capital stock of the Mechanics Bank. These scattered items are 
probably of no great significance for present purposes. 



CHAPTER III. 
THE FORTUNE OF JAY GOULD. 



TAY GOULD prefaced his speculative activi- 
ties by a short probation as clerk in a hard- 
ware store, a lengthier experience as surveyor 
of county lands, and a three years' career as 
tanner in western Pennsylvania.^ In this last 
occupation he laid the first slight foundations 
of his subsequent prosperity, and from it 
he derived, in part at least, the funds 
employed in liis early speculative ventures. 
It is not altogether clear just how Gould 
succeeded in establishing himself in the 
tanning industry, although it is easy enough to 
see how he might have acquired some knowledg^e 
of the business as he explored the tanning regions 
of New York and Pennsylvania on his surveying 
expeditions. At any rate, he somehow managed 
to secure the co-operation of a wealthy tanner. 
Colonel Pratt, of Prattsville, with whose assist- 
ance he was enabled to install himself as head of 



iFor details of his early life, cf. an article on Jay Gould in 
Sketches of Men of Progress, (1870-71). Cf. also 'Houghton, 
Kings of Fortune, (1888). Both of these accounts contain mani- 
fest inaccuracies and conflicting statements. Cf. also articles in 
the New York Times for December 3, 1892, 



56 GREAT FORTUNES. 

a large concern in western Pennsylvania. One 
writer implies that the alluring prospects of gain 
afforded by that untouched western region were 
so ably presented by Gould, that Pratt was at 
once induced to join in this venture." Another 
biographer insinuates that a timely dose of flat- 
tery did the work. He states that Gould, while 
editor of a newspaper for a short time in 1856, 
wrote an article urging Pratt's nomination to the 
Vice-Presidency — to the great delight of that 
unsophisticated gentleman. In fact, Pratt was 
so pleased that he cheerfully agreed to take Gould 
with him to western Pennsylvania, where he pro- 
ceeded to purchase acres of forest land, and to 
erect a tannery, surrendering to Gould, as his 
partner, full charge of the whole.^ 

However chimerical the accounts of its origin, 
the tannery was actually built, and, under 
Gould's management, was soon prospering. The 
company weathered the panic of 1857, and two 
years later Gould bought out Pratt's interest 
in the business. The events leading up to this 
purchase are again obscure. It has been said (al- 
though such unsubstantiated statements must be 
taken with caution) that Pratt became convinced 
that Gould was using the firm's signature for 

-Cf. article in Sketches of Men of Progress. 

set", the article in Houghton's Kings of Fortune. 



JAY GOULD. 57 

borrowing sums of money, which were not used in 
the business.^ Pratt, therefore, gave Gould the 
option of buying the entire tannery, or else of 
selling his interest in it. Thinking Gould unable 
to effect a purchase, Pratt offered to dispose of 
his own share of the business at a very low price. 
Gould was not slow to seize the opportunity of 
acquiring such a bargain. He obtained the nec- 
essary funds from Charles M. Leupp and Com- 
pany, leather dealers of New York, and Leupp 
at once superseded Pratt as his partner in the 
tannery. But trouble of some sort speedily 
arose between the new partners. There was a 
veritable fight for possession of the tannery. The 
sheriff and his posse once captured the place dur- 
ing Gould's absence, but the latter, nothing 
daunted, called together his employees and ousted 
the invaders.^ Thus early in Gould's career, it 
became necessary to employ military phraseology 
in describing liis business tactics. Throughout 
his life, indeed, he displayed a fine fighting spirit, 
strengthened by the conviction that "all is per- 
mitted" which can be successfully accomplished. 
But whatever the rights of this early contest, 
Leupp was, at any rate, vanquished, and he 
speedily died or else committed suicide as a result 

tibid. 

sThe New York Times, December 3, 1892. 



58 GREAT FORTUNES. 

of his business losses. Financial embarrassments 
necessitated keeping the tannery closed for a 
time, but it was soon reopened with Gould, as 
sole manager and proprietor, employing two 
hundred and fifty men and manufacturing 
1,500,000 pounds of sole leather annually. 

However, the tannery proved to be but a lever- 
age for Gould's later speculative operations. At 
the beginning of the sixties, railroad securities 
were greatly depressed in value, and bankrupt 
roads were numerous. Gould liit upon the 
scheme that was to make liis fortune. He aban- 
doned the tannery, and, with the proceeds from 
tlie business, together with borrowed funds, he 
began to invest in the shares of bankrupt compa- 
nies. Among his earliest purchases were the 
mortgage bonds of the Rutland and Washington, 
and the Troy and Rutland railroads.*^ Not only 
did Gould succeed in raising above par the bonds 
which he bought at 10, but, according to his own 
testimony, he actually sold some of the stock at 
125.^ In less than two years, these roads were 
consolidated with the Saratoga, Whitehall and 
Rensselaer, whose bonds and stocks were market- 
eer, article in the New York Times, December 3, 1892, Gould's 
Eventful Life; also account in Sketches of Men of Progress. 

7U- S. Pacific Railway Commission, Senate Executive Docu- 
ments, 51 First Session, Fiftieth Congress, Testimony of Jay 
Gould, Vol. I, p. 479. 



JAY GOULD. 59 

ed at a profit, the proceeds being used to purchase 
a large interest in the Cleveland and Pittsburgh.^ 
Its securities were Hkewise disposed of later at an 
advance. 

By this time, Gould was definitively established 
as a broker, doing business in Wall Street. In 
1860, he had become acquainted with Henry W. 
Smith, and, shortly afterwards, they, together 
with Henry H. Martin, had formed the broker- 
age firm of Smith, Gould, and Martin.® 
Throughout the war, the partners transacted a 
lucrative business in railway securities, and also 
made money on gold speculations. The opera- 
tions in gold, begun thus early, culminated sev- 
eral years later in the spectacular panic of Sep- 
tember 24, 1869— "Black Friday"— the outcome 
of Gould's attempt to corner the gold market. 
The premium on gold, which had arisen as the re- 
sult of the inconvertible "greenback" issues occa- 
sioned by the war, had dropped to 30 1-4 by 
March, 1869. This was the lowest point which 
had been reached in three years, and there were 
indications that the quotations might go still 
lower. But about the middle of April Gould 
bought seven millions of gold and put up the quo- 
tation from 132 to 140, On May 20, the quota- 

sNew York Times, December 3, 1892, Gould's Eventful Life. 
9New York Times, December 3, 1892. 
6 



60 GREAT FORTUNES. 

tion was 144%, but in July it had fallen to 
136/" Neither then, nor later in his career, was 
Gould desirous of trusting to the luck of the 
market. His plans had been laid with an elab- 
orate caution, and he was resolved to guard 
against all untoward events. If, for instance, the 
government were to sell gold at a critical junc- 
ture in his "bull" campaign, the market would be 
spoiled and his schemes frustrated. Gould and 
his able ally, Fisk, took occasion, therefore, to 
question the President of the United States con- 
cerning his views on the propriety of advancing 
the premium on gold. The time selected for in- 
terrogation was propitious, as Fisk had secured 
the President as a guest on board his yacht, and 
had exerted his lively imagination to the utmost 
to afford him proper entertainment. However, 
his adroit inquiries elicited little information; the 
President's attitude was noncommital, not to say 
discouraging.^^ 

But Gould was not to be balked. He induced 
Corbin, the President's brother-in-law, to mediate 



loReport of the Committee on Banking and Currency ap- 
pointed "to investigate the causes that led to the unusual and 
extraordinary fluctuations of gold in the city of New York, from 
the 21st to the 27th of September, 1869." House of Representa- 
tives, Report No. 31, 41st Congress, 9nd Session, p. 2. 

iiHouse Report, No. 31, p. 3. Cf. also Henry Adams, The 
New York Oold Conspiracy, from Chapters of Erie and Other 
Essays, p. 116, 



JAY GOULD. 61 

in his interest, and he secured the cooperation of 
General Butterfield, Assistant Treasurer at New 
York.^^ According to Gould's own testimony, 
corroborated by the stammering and conflicting 
statements of these paid agents, he bought and 
carried for Corbin about two millions, and for 
Butterfield, about a million and a half of gold. 
Butterfield was also invited to join him in pur- 
chasing control of the Tenth National Bank, over 
half of whose capital stock was bought August 
5, 1869, as preliminary to operations on the Gold 
Exchange. ^^ Still with the desire of ensuring the 
success of his plans, Gould caused an article to 
be published in the New York Times, purporting 
to be written by a person in the intimate confi- 
dence of the President, and intending to convey 
the idea that the Administration would oppose a 
sale of gold in the interests of lower prices.^* 

i^Tke New York Gold Conspiracy, p. 116, 

isHouse Report 31 ; cf. testimony of Gould, pp. 151-54, and 
160-61; testimony of Butterfield, pp. '314-28; testimony of Corbin, 
pp. 253-57. 

KHouse Report 31, p. 378. 

The New York Times refused to print a portion of the article. 
The excluded part read as follows: 

"It may be objected that the disbursement of currency to the 
largest convenient extent, and the retention in the Treasury of 
unneeded gold, mhU cause gold to rise again to 135 or 140. 
Suppose it should thus result. It would secure large shipments 
of breadstuffs, provisions, butter, cheese, petroleum, cotton, 
tobacco, etc., at increased prices; and, to the amount shipped, 
would save to our people an equal value of gold. Hence, as gold 
accumulated, the less would be the premium upon it; high prices 



62 GREAT FORTUNES. 

Everything was done to inculcate a belief that 
gold ought to rise — that the premium on it ought 
to be advanced for the sake of the oppressed 
farmer whose crops could then be brought to 
market and disposed of at higher currency prices. 
Nevertheless, it was the general belief among im- 
porting merchants that gold was sure to fall. 
They reasoned that an unusually large cotton 
crop, payment of interest on the national debt, 
and other causes would operate to keep exchange 
in favor of the United States and to reduce the 
premium on gold.^^ Consequently, nearly all of 
the large importers were "short" of the market. 
If they could be "cornered," Gould would be 
able to profit at the expense of many wealthy 
victims. 



for gold before the sale of our products would cause lower prices 
of gold after the sale of exports. It is better for our country to 
ship produce to pay for our imports than gold or bonds. The 
objection to the retention of gold in the Treasury until our 
productions are marketed is unsound; for the retention of gold 
will make both gold and the productions dearer at the time of the 
sale of the productions; if gold is not needed for shipment, the 
premium on it would fall. Large exports of produce, stimulated 
by the temporary high price of gold, would cause gold to bear a 
lower price. Hence, a high price for gold, during the next three 
months, would be productive of great good to exporters of prod- 
uce. The fall of gold at this time to 25 per cent, would bring 
ruin upon the agricultural, manufacturing, and mechanical 
classes; injury to these would entail injury upon the merchants 
and upon laborers. If gold is made cheap, it will be exported; 
if too dear to export, then produce will be shipped in lieu of it. 
Hence government will not so act as to lessen the value of this 
year's abundant crop, but will labor to increase its value and pro- 
mote its exportation to foreign countries." 

isHouse Report 31, p. 332. Testimony of Mr. Opdyke. 



JAY GOULD. 63 

Fisk did not definitively join the gold clique 
till the middle of September, when he became 
convinced that the Administration was engaged 
in speculation, and that success was therefore a 
"sure thing." It is an interesting fact that not 
even to a man so intimately associated with him 
as was Fisk, did Gould divulge the real state of 
affairs. The reasons for his habitual secrecy 
frequently became painfully apparent in the se- 
quel. Then it was seen how little he scrupled to 
profit at the expense of his alHes, when his op- 
ponents were getting the better of him. 

By the twenty-second of September the clique 
had advanced the price of gold to 140%, Fisk 
says they had then contracted for fifty or sixty 
millions; Gould modestly places the amount at 
twenty-five millions; but Smith, his partner, 
estimates that their holdings ranged from forty 
to fifty-five millions, the purchases being made 
by fifty or sixty brokers. Until the twenty-third 
of September, the business was done through the 
firm of Smith, Gould, and Martin, who employed 
all these other brokers.^*^ So soon as the cHque 
bought gold, they loaned it to the "bears," thus 
receiving back the money they had given for it, 
compelling their opponents to pay them interest 

^QCommercial and Financial Chronicle, Oct, 16, 1869, Vol. IX, 
p. 486. 



64 GREAT FORTUNES. 

for the privilege of carrying it, and, as the price 
advanced, calling up margins, with which to pur- 
chase additional sums/^ 

Meantime Gould had waxed apprehensive. He 
feared Boutwell, the Secretary of the Treasury, 
might be induced to sell gold; so he persuaded 
Corbin to write the President a letter urging non- 
interference by the government. This communi- 
cation reached President Grant at a remote spot, 
whither he had gone for a vacation, the messenger 
who brought it showing evidence of having trav- 
eled in haste. Consequently, suspicions were 
aroused, and Corbin was warned of the danger 
of engaging in gold speculations. Thoroughly 
alarmed at the result of his communication, Cor- 
bin reported everything to Gould and demanded 
a settlement. The latter was at once convinced 
that the game was up, and he resolved to sell out 
as unostentatiously and as expeditiously as pos- 
sible, leaving Fisk and his confreres in entire ig- 
norance of recent developments.^'^ 



^tlbid., p. 486. 

isCf. Henry x^dams, The New York Oold Conspiracy, in 
Chapters of Erie and Other Essays, pp. 124-137; also House 
Report 31, p. 13. 

C. E. Quincey, clerk for William Heath and Co., testified to 
having bought over $14,015,000 of gold. Betv/een September 11th 
and September 19th, he sold for the personal account of Gould, 
$3,845,000; sold, delivered, and settled for Smith, Gould, and 
Martin, the balance of the $14,015,000. 



JAY GOULD. 65 

On Thursday gold closed at 144, the clique hav- 
ing calls for over one hundred millions. There 
were not more than fifteen milhons of gold and 
certificates in New York, outside the Sub-Treas- 
ury, and at least two hundred and fifty firms, 
many of them leading banking and mercantile 
houses, were short of the market. In the midst 
of the prevailing excitement, Gould continued to 
buy small amounts, merely to keep up appear- 
ances, while selling all the time through agents 
to the very brokers who thought they were pur- 
chasing in his interest. William Belden, the tool 
of his machinations, gave unlimited orders, re- 
ferring to Fisk and to Smith, Gould, and Martin, 
as his principals.^^ Moreover, Albert Speyers, 
convinced that Belden was broker for the whole 
party, was induced to buy on behalf of the lat- 
ter. Before noon of the eventful Friday, Speyers 
had purchased nearly sixty millions of gold, and 
Belden did not even know how much had been 
bought in his name. At the height of the hyster- 
ical confusion precipitated by all this reckless 
buying, James Brown, a banker, who was leading 
in the "bear" interest those men whose legitimate 
business required the purchase of gold, offered a 
milHon at 162. Doubt seized his opponents; 

loHouse Report 31, pp. 12, 13. 



66 GREAT FORTUNES. 

there were no takers. Then the same amount was 
offered at 161 ; finally, five milHons at 160. There- 
upon the market broke, and ten minutes later 
came the news that the government had ordered 
General Butterfield to sell four milhons of gold, 
and to purchase four millions of bonds. "° Upon 
the receipt of that information, the price plunged 
downward to 133. The "corner" had so little 
basis in reality, that it had succumbed without 
perceptible delay to the shock occasioned by this 
slight blow. 

It is not possible to say just how much was 
won or lost as a result of this attempt to "cor- 
ner" gold. James B. Hodgskin, testifying be- 
fore the House Committee which investigated the 
causes of the panic, estimated that the clique profit 
was $12,000,000.^^ Tliis estimate was based on 
private statements made by brokers the day of 
the panic. Had the Friday transactions been 
settled, Hodgskin thought that at least twenty 
millions would have been lost. Gould had, in- 
deed, nominally fulfilled all his contracts, since 
he had been consistently selling and making set- 
tlements at the prevailing high prices. However, 

2oGould was undoubtedly anticipating such action on the 
part of the government. National bank examiners had pre- 
viously descended upon the Tenth National Bank, and destroyed 
its usefulness by preventing further certifications of brokers' checks. 

2iHouse Report 31; testimony of James B. Hodgskin, p. 39. 



JAY GOULD. 67 

he had permitted Fisk to go on buying, and had 
dehberately fostered the idea that they were act- 
ing in concert. Thereby Fisk and his brokers 
became the victims through whose agency Gould 
was enabled to unload his holdings. ^^ However, 
the victimized ones did not suffer greatly. Fisk 
cheerfully repudiated the seventy milHons of pur- 
chases made by Belden, denying that the latter 
had bought in his interest. In fact, Fisk even 
produced a letter purporting to be from Belden, 
telling him to purchase and sell gold on his (Bel- 
den's) account."^ Thus the latter was made the 
scapegoat of the whole affair, but, as his acqui- 
escence in this role was no doubt liberally reward- 
ed, he is scarcely deserving of sympathy. On 
September 27th, Gould and Fisk, as sole answer 
to insistent demands for settlement, obtained 
twelve injunctions and judicial orders of various 
sorts. Thereby they placed the gold clearing 
house in the hands of receivers, restrained its offi- 
cers from making settlements except on order of 
the courts, and prevented the officers of the Gold 
Exchange from enforcing against the clique rules 
to compel settlement. 

22Whether Fisk remained in ignorance of Gould's plans until 
the very end, or whether they entered into some agreement prior 
to the day of the panic, is uncertain; cf., however, the Commercial 
and Financial Chronicle, Oct. 1869, p. 486. 

23Cf. House Report 31; testimony of Belden, p. 301. 



68 GREAT FORTUNES. 

Fisk's testimony before the House Committee, 
which investigated the occurrences leading up to 
"Black Friday," is extremely amusing. 

The whole movement was based upon a desire on our part to 
employ our men, and work our power, getting the surplus crops 
moved east, and receiving for ourselves that portion of the trans- 
portation properly belonging to our road (i. e., the Erie). That 
was the beginning of the movement, and the further operations 
were based upon a promise of what Corbin said the government 
would do.... My transactions were merely to support the gold 
market, without any understanding that there was to be any 
corner; without any imderstanding whatever, of any name oi 
nature, further than to assist Mr. Gould in this transaction. He 
had started out with the view of giving work for our men and 
our power during the fall and winter,-'4 

Thus was a desire to profit the Erie, 
through the increased freightage that sup- 
posedly would come with high prices of agri- 
cultural products, alleged to be responsible for 
the whole movement. And, no doubt, the Erie 
was a very efficient cause of these operations, in 
that its obhging Treasury was always at the dis- 
posal of Gould and Fisk. For that matter, they 
would have been quite capable of maintaining 
that to use its funds in such a cause was to ex- 
pend them legitimately in the interests of the 
road. But however altruistic their professed mo- 
tives, their macliinations resulted in a severe 
financial crisis. Not only speculators suffered 
from their attempts to "corner" gold, but the 

24House Report 31, p. 176. 



JTAY GOULD. 69 

mercantile classes also lost heavily, as a result of 
the extraordinary monetary derangement that 
ensued. 

The history of Gould's connection with the 
Erie dates back several years prior to his specu- 
lations in gold. His attention was first called to 
this road by Daniel Drew,^^ the great "bear" 
operator, who was one of the customers of Smith, 
Gould, and Martin. Drew induced Gould to join 
in the fight against Vanderbilt, who was making 
desperate efforts to secure the Erie. Indeed, 
Vanderbilt was determined to get possession of 
this, the only great hne of railroad save his own, 
which crossed the state of New York. Early in 
1868, therefore, he started out to buy control, 
and, astute man though he was, he was deluded 
into beheving that he had succeeded. But he had 
reckoned without the resourceful Drew and his 
clever associates. At a most critical juncture, 
the Executive Committee of the Erie, of which 
Drew, risk, and Gould were all members, au- 
thorized an issue of ten milhons of convertible 
bonds. These bonds were placed on the market 
in two installments. They were immediately 
bought in by the men in control of the Erie man- 
agement, and were forthwith converted into 

26New York Times, December 3, 1893. 



70 GREAT FORTUNES. 

stock, which was offered for sale to Vanderbilt's 
unsuspecting agents. Down went the stock quo- 
tations, as soon as it became known that the mar- 
ket had been flooded with these new issues. Van- 
derbilt was forced to keep buying in a vain effort 
to protect holdings previously bought at high 
prices. His losses were heavy; Drew and his fel- 
low directors were triumphant. ^^ Nevertheless, 
the victorious party had to flee to New Jersey to 
avoid processes of contempt for having disobeyed 
an injunction not to convert the second install- 
ment of bonds into stock. 

However, Drew soon tired of loitering in New 
Jersey, and after the Albany legislature had 
passed a bill forbidding any connection between 
the Erie and the New York Central (May, 
1868),"^ both Vanderbilt and he were prepared 
to come to terms. The settlement, as agreed 
upon, provided that Vanderbilt was to be re- 
lieved of 50,000 shares of the Erie at 70, receiving 
in payment $2,500,000 in cash, and $1,250,000 in 
bonds of the Boston, Hartford and Erie at 80. 
Further, he was to receive $1,000,000 as a consid- 
eration for the privilege of calling for his remain- 

26Cf. Charles Francis Adams, A Chapter of Erie, in Chap- 
ters of Erie and Other Essays, pp. 29, 30. 

"iT Commercial and Financial Chronicle, May 9, 1868, Vol. VI, 
p. 587. Cf. A Chapter of Erie, pp. 48-56, for a description of 
the part played by Gould in securing the passage of this bill. 



JAY GOULD. 71 

ing 50,000 shares of stock at 70, any time within 
the following four months. He was also to have 
two seats on the Erie directorate placed at his 
disposal. Drew, for his part, was to pay into the 
Treasury of the Erie $540,000 with interest, as an 
indemnity for his peculations while Treasurer of 
the road. Otherwise, he was left in undisturbed 
possession of the gains made out of his recent ex- 
traordinary operations in the stock market. ^^ 

Drew now abdicated his position as Treasurer 
of the Erie, and Gould and Fisk were left in a 
position of unbridled control. During the period 
from July 1st, 1868, to October 24th of that year 
the stock of the road was increased from $34,- 
265,300 to $57,766,300—235,000 shares in all. 
Stock quotations fell rapidly and soon sales were 
being made at 35. This steady stream of new is- 
sues (made possible under the elastic provisions 
concerning convertible bonds ) , so completely de- 
moralized the stock market, and placed so large 
an amount of the loanable funds of the commun- 
ity in the hands of a few speculators, that the 
government was forced to promise to relieve the 
stringency, if necessary."^ 

2sA Chapter of Erie, p. 59. Cf. The Commercial and Finan- 
cial Chronicle for notices appearing at intervals during the pro- 
gress of the contest. 

29Commercial and Financial Chronicle, Nov. 14, 1868, Vol. 
VII, The Wall Street Crisis. 



72 GREAT FORTUNES. 

Meanwhile, Daniel Drew was engaged in his 
usual "bearing" operations, having contracted to 
deliver 70,000 shares of Erie at 38 in the follow- 
ing November. The chance of "cornering" Drew 
was too good to be missed, and Gould, together 
with his erratic running mate, resolved to make 
the most of it. From having worked for a fall, 
they reversed their plans with a bewildering sud- 
denness, and began to "boom" the depressed 
stock of their road. The task was not difficult, 
since the treasury of the Erie was at their dis- 
posal, and its funds could be used in making un- 
limited purchases. Drew, in desperation at see- 
ing the stock slowly rising, resolved to bring suit 
against the management. On his affidavit, a 
complaint was filed by Belmont and others 
against the Erie Railway Company. It was 
urged that the parties in control of the road had 
secured their position by offering President El- 
dridge special inducements to resign, purchasing 
from him, at 80, $5,000,000 of bonds of the Bos- 
ton, Hartford, and Erie, in which he was largely 
interested. Moreover, it was charged that Gould 
had used several millions of the funds of the com- 
pany in purchasing stock and proxies prior to the 
October election. Finally, it was stated that, 
since the election, additional stock issues to the 
amount of $23,000,000 had been put forth, and 



JAY GOULD. 73 

the money arising from the sales had been used 
by the managers to further their stock specula- 
tion.^'' 

In anticipation of this suit, Gould and Fisk 
forestalled the application for a receivership, 
which accompanied it, and induced Judge Bar- 
nard, who was always at their service, to appoint 
Gould receiver for the road. The latter was even 
empowered to use his discretion in buying up, at 
any price below par, 200,000 shares of stock, 
the legality of whose issue had been quite properly 
questioned. These shares, issued under the "con- 
vertible bond" provisions, had been marketed at 
40, and were then selling at 35.^^ The price of 
the Erie stock rose rapidly, when it became 
known that the money in the treasury was being 
squandered upon its purchase. Drew fought des- 
perately, although his destruction appeared in- 
evitable. However, at the very moment when it 
seemed certain that Gould and Fisk had cornered 
the market, large amounts of stock, supposed to 
be out of the country, were offered for sale. If 
the comer were to succeed, Gould and Fisk must 
take all that was offered. For some reason, thev 



soCommercial and Financial Chronicle, November 14, 1868, Vol, 
VII, p. 648. 

31 Charles Francis Adams, A Chapter of Erie, in Chapters 
of Erie and Other Essays, p, 73, 



74 GREAT FORTUNES. 

failed. Drew made good his contracts at 57, and 
the stock fell speedily to 42. 

Both sides lost heavily, but Gould was still 
intrenched in the Erie. A suit was now com- 
menced against Belmont and others for the pur- 
pose of showing that the suit recently instituted 
by the latter was not brought in good faith. More- 
over, Gould's position was further strengthened 
through the action of a complacent judge, Blatch- 
ford by name. On the petition of a holder of re- 
cently issued stock, who "feared that the issue 
might be declared illegal," this magistrate direct- 
ed $8,000,000 of the money of the company to be 
placed in the hands of the receiver (Gould), as a 
protection to the holders of such stock."^ 

About this time Gould was confronted by a 
rival receiver, appointed by a hostile judge. But 
Fisk and he fortified themselves witliin their 
headquarters, and, in the face of conflicting judi- 
cial orders, managed to maintain their hold on 
the Erie. Eventually their opponents gave up 
the hopeless contest; truce was established; and 
Gould was left to enjoy his receivership. When 
that was vacated, he once more assumed the Pres- 
idency of the road, from which position he was 
not deposed till March, 1872. Even then he re- 

32Commercial and Financial Chronicle, November 31, 1868, Vol. 
VII, pp. 647, 648, 67T, 



JAY GOULD. 75 

mained director of the road for a time, and it was 
reported that his loss of position was solaced by 
a gift of $1,000,000, in repayment of advances 
and loans negotiated entirely on his own respon- 
sibility.^^ 

During the period of his administration, the 
capital stock of the road had been increased $61,- 
425,700, and the "construction" account had risen 
from $49,247,700 in 1867 to $108,807,687.'* 
Stock to the amount of $40,700,000 had been 
marketed by the firm of Smith, Gould, and Mar- 
tin, and, incredible as it may seem, its sale had 
netted the company only $12,803,059. In the 
face of such proceedings, it is small wonder that 
the Erie was left to fall into a state of chronic 
bankruptcy, and to operate as a disturbing fac- 
tor in the railroad world down to the present day. 

Yet, after all, the movement to oust Gould 

ssCommercial and Financial Chronicle, March 16, 1872, Vol. 
XIV, p. 342. 

34The New York Times, December 3, 1892. 

Testimony was taken by the Hepburn Committee, in 1879, Vol. 
v., p. 18, to the effect that the road and equipment of the Erie 
could be replaced for about $40,000,000. It was also stated that 
the company's report to the State Engineer in 1873 showed under 
the head of "construction account," $47,000,000, representing a 
"discount on the sale of convertible bonds." It is also interesting 
to know that "legal expenses" of more than $890,000 were charged 
to the construction account in 1870. The witness furnishing this 
testimony had just been employed in taking an inventory of the 
road, and he had come to the conclusion "that the construction 
account not only covers the proper cost of the road, but, like 
charity, it covers a multitude of sins." 



76 GREAT FORTUNES. 

does not appear to have been the result of any 
aroused public sentiment. In fact, the public 
mind was firmly fixed on the desirability of pre- 
venting a coalition between the Erie and the New 
York Central. Gould even posed in the light 
of a public benefactor — the friend of the people 
and of the shipping public. He was the man who 
had circumvented the formation of a great mon- 
opoly. Just so had he been the disinterested 
friend of the farmer during his campaign to 
"bull" the gold market. 

The effective opposition to the Gould manage- 
ment came seemingly from a group of specula- 
tive English holders of the Erie stock, who hoped 
to profit by the rise sure to follow his deposi- 
tion.^^ Having succeeded in dislodging Gould 
from the Presidency, his opponents proceeded to 
take further measures. In July, 1872, suit was 
brought against him in the Court of Conmion 
Pleas (New York), to recover a sum of nearly 
$10,000,000, said to have been misappropriated 
by him, while an officer of the company. At the 
election held in the same month under an act of 
the New York Assembly, his connection with the 
company was entirely severed.^'' The following 
December, Gould undertook to convey to the 

s5Cowmercial and Financial Chronicle, March 30, 1872, Vol. 
XIV, p. 406. 



JAY GOULD. 7T 

Erie real estate and securities, having a (nom- 
inal) value of $9,086,000, in settlement of the 
claims against him.^^ Naturally, the stock rose 
when Gould's intentions became known, and sus- 
piciously large amounts were offered for sale. 
Then came a distressing slump, when it began to 
be rumored that Gould's restitution had been 
largely a restitution in name. There was room for 
believing that he had again profited by his own 
misdeeds — that "buying at the bottom (he) had 
sold twice as much at the top," and had fulfilled 
his contracts after the drop in prices. It was es- 
timated that he acquired several millions as the 
result of this, his farewell operation in Erie 

stocks. 

II. 

The West has always been the great field for 
the speculator. It is the land of big enterprises 
prematurely developed — a land in which the 
pioneers in investment are not so apt to profit, 
as to lay the foundations of a fortune for 
their immediate successors. At the period when 
Gould severed his relations with the Erie, the 
railroads of the West had just come into being, 
under the impetus of state and national loans and 



3«Ibid., July, 1873. 

^'^ Commercial and Financial Chronicle, December 31, 1873, Vol, 
XV, p. 830, New Yorjc Times, December 3, 1892, 



78 GREAT FORTUNES. 

land grants. Needless to say, some of their pro- 
moters had already become involved in difficul- 
ties. The Union Pacific, for example, was in 
hard straits. It had been built "when the price 
of labor and material was extremely high, gov- 
ernment bonds at a discount, gold at a premium, 
the national currency inflated," and no other 
road within one hundred miles. ^^ Moreover, the 
method of financing its construction had been 
peculiar, and, when completed, it was saddled 
with interest payments on $27,000,000 first mort- 
gage bonds, $27,000,000 government bonds, $10,- 
000,000 income bonds, $10,000,000 land grant 
bonds, and, if anything were left, dividend pay- 
ments on $36,000,000 of stock. Surely, the fu- 
ture did not appear altogether bright, and the 
disclosures connected with the Credit Mobilier 
Company^^ — the disgrace and death of Oakes 
Ames — were further demoralizing to the good re- 
pute of the road. Following these revelations, 
the Ames' stockholdings were thrown on the 
market for what they would bring. Gould was 
not slow to take advantage of tliis favorable op- 
portunity to invest, and the purchases then made 
laid the basis of his subsequent large interests in 

ssjohn P. Davis, The Union Pacific Railway (1894), p. 173. 

39Credit Mobilier Investigation, House Report, No. 78, 42nd 
Congress, 3rd Session, Feb. 18, 1873, 



JAY GOULD. 79 

the Union Pacific.^*' In the previous year, a 
coterie headed by Vanderbilt's son-in-law, Hor- 
ace F. Clark, had purchased control of the road,^^ 
with a view to throwing its traffic over the New 
York Central lines. However, Clark's death in 
1873 caused his holdings to be offered for sale, 
and they were bought in by Gould at 35. Dur- 
ing this year alone Gould obtained 100,000 shares 
of Union Pacific stock, doubling his holdings in 
the course of the next five years. 

Unhappily, the road was overburdened with 
debt ; the outlook was unpromising, and the price 
of the stock soon fell to 14. Something must be 
done to rehabihtate it, or, at any rate, to make 
its stock salable. As the surest means to this 
end, Gould advocated the policy of liberal divi- 
dend payments. From July, 1875, to January, 
1880, dividends to the amount of $11,900,000 
were disbursed.^^ The business of the road had 
increased, to be sure, rising from $7,600,000 in 
1870 to $13,200,000 in 1880, while the operating 
expenses had decreased from 61.34 per cent, of 
the gross earnings to 41.48 per cent. However, 

40 Pacific Railway Commission; testimony of Charles Francis 
Adams, Vol. T, p. 71. 

-nHenry K. White, History of the Union Pacific Railway 
(189,5), p.' 55. 

Cf. Poor's Manual of Railroads for list of directors. 

42White, History of the Union Pacific Railway, p. 60. 



80 GREAT FORTUNES. 

items were charged to the construction account, 
which should have been accredited to operating 
expenses, while, at the same time, the unusually 
high passenger and freight rates that prevailed 
during the period, helped to swell the gross earn- 
ings/^ Moreover, the interest on the debt, ac- 
cruing to the United States, was excluded from 
the income account, in accordance with a decision 
of the courts that such interest was not payable 
until the maturity of the bonds. Nevertheless, 
a failure to provide for these interest payments 
meant eventual bankruptcy for the Union Pa- 
cific. Meantime, dividend payments raised the 
price of the stock, and enabled Gould gradually 
to dispose of his holdings, until, by the end of 
1879, he owned but 27,000 shares, out of a for- 
mer maximum of 200,000.^^ 

As he withdrew from the Union Pacific, Gould 
began to invest in various bankrupt roads, of no 
importance in themselves, but valuable in that 
they enabled liim to levy tribute on the Union Pa- 
cific. His connection with the Kansas Pacific 
and the Denver Pacific dates from 1875. Both 
companies were insolvent, and the value attach- 

43fieport of the Pacific Railway Commission, p. 53. 

44Paciftc Railway Commission; testimony of Addison Cam- 
mack, Vol. I, p. ?81. He states that Gould sold to a syndicate 
70,000 shares of stock of the Union Pacific some time before 
March, 1879, the price of the sale being between 6.5 and 70. 



JAY GOULD. 81 

ing to the Denver Pacific stock was altogether 
contingent upon the value that Gould might be 
able to infuse into the Kansas Pacific securities 
(the Denver Pacific being the connecting link 
between the Union Pacific and the Kansas Pa- 
cific) . In 1877, the Kansas Pacific, in an en- 
deavor to prevent foreclosure, issued a funded 
mortgage of $15,000,000. At the time, it held 
over 29,000 shares of the stock of the Denver 
Pacific, received in payment of advances made to 
the latter road. This stock was therefore used as 
part security for the funding bonds. The des- 
perate condition of the road enabled Gould and 
his Union Pacific confreres to purchase largely 
of its securities at very low prices, and, by 1879, 
Gould himself had attained to a position of con- 
trol. 

He now disclosed to the astonished directors 
of the Union Pacific a plan he had matured for 
effecting the consolidation of the Union Pacific, 
Kansas Pacific, and Denver Pacific roads — the 
stock of all these companies to be exchanged 
share for share for stock of the new combined 
organization. By means of judicious dividend 
payments, the stock of the Union Pacific had ac- 
quired a very fair reputation as an investment se- 
curity, and the indignant directors (who hap- 
pened to be more largely interested in the Union 



82 GREAT FORTUNES. 

Pacific than in either of the other roads) prompt- 
ly rejected the proposition.^^ 

Gould, without more ado, went to Kansas, 
bought up the Missouri Pacific, which extended 
from St. Louis to Kansas City, for $3,000,000, 
and, as part of the transaction, purchased a con- 
trolling interest in the Kansas Central. His 
method of obtaining the Missouri Pacific was 
characteristic. He simply threatened to build 
the Kansas Pacific as far east as the Missouri 
Pacific built west, at the same time accompanying 
the threat with an offer to purchase. ^'^ A few 
days prior to tliis transaction, Gould had ob- 

4fi Report of the Pacific Railway Commission, Vol. I, p. 58. 
The relative standing of the three companies is shown as follows: 

Annual net Annual net 

earnings per mile, interest per mile, 

1870-80. 1870-80. 

Union Pacific .^5,616.66 $3,185.39 

Kansas Pacific 1,601.77 2,294.71 

Denver Pacific 1,323.70 1,794.89 

The stock held by Gould and other Union Pacific directors in 
the Kansas Pacific at the time of the consolidation: 

Jay Gould .154,000,000 

F, G. Dexter 125,700 

E. H. Baker 37,400 

Russell Sage 443,000 

Elisha Atkins 45,600 

F. L. Ames 179,600 

Sidney Dillon 305,900 

All of these men held large amounts of the consolidated bonds 
and other securities of the Kansas Pacific and branch lines. 

46White, History of the Union Pacific Railway, pp. 58, 59. 
Pacific Railway Commission; testimony of Gould, Vol. I, p. 509. 



JAY GOULD. 83 

tained 7,616 shares of stock of the Central Branch 
of the Union Pacific, paying the extraordinary 
price of $238 per share for securities which had 
sold at $10 within the year.*^ However, control 
of this road was for the moment essential to 
Gould's plans; when he no longer needed it, he 
graciously disposed of it to the Union Pacific for 
exactly the sum that it cost him. 

Thereafter Gould let it be known that his 
views were altered. He would construct a Pa- 
cific road of his own by extending the Kansas 
Pacific through Loveland Pass to Salt Lake City 
and then to San Francisco, by means of the Cen- 
tral Pacific. This announcement frightened the 
unhappy directors of the Union Pacific into com- 
pliance with his original proposal, Gould all the 
while protesting that the consolidation was not 
so greatly to his advantage as his new scheme. 
The three roads, that is, the Union Pacific, Den- 
ver Pacific, and Kansas Pacific, were merged 
(January, 1880), the shares being exchanged for 
new stock, dollar for dollar, the bonded indebted- 
ness being left undisturbed. Of this new stock, 
Gould received approximately 99,000 shares, 
much of which was speedily disposed of, Gould 
admitting that his desire to sell had been stimu- 

47Report of the Pacific Railway Commission, p. 60. 



84 GREAT FORTUNES. 

lated by the fact that the consoKdation had caused 
an advance of 30 points in stock quotations/^ 

It was generally conceded that the union of the 
three roads was advantageous, however hard the 
terms ; and testimony was unanimous in favor of 
the branch line system advocated by Gould, who 
profited by buying up numerous little roads, and 
selling them to the Union Pacific at enhanced 
prices. No doubt, these acquisitions sometimes 
benefited the main line,^^ but it would seem that 
Gould in his fiduciary position should have con- 
fined his activity to suggesting such purchases to 
the management. 

By 1883, Gould had entirely disposed of his in- 
terests in the Union Pacific, and that most oppor- 
tunely. The past four years had been prosper- 
ous, but he was too shrewd a man not to take heed 
when disaster was approaching. Perhaps he saw 
it the more clearly, because he usually helped to 
precipitate it. At any rate, the competition of 
new lines that were building, as well as the heed- 
less squandering of substance on branch roads 

*8]Pacific Railway Commission; testimony of Jay Gould, Vol. 
I, p. 559. It is stated that Gould obtained his Kansas Pacific 
stock at 12 y2. 

■*9However, the statement is made in the Report of the Pacitic 
Railway Commission, Vol. I, p. 66, that the three branches (the 
Denver, South Park and Pacific Railway Company, the Central 
Branch Union Pacific, and the Kansas Central) "were all bought 
from Mr. Gould, and the terms at which they were acquired were 
such as to make it impossible to avoid a disastrous result." 



JAY GOULD. 85 

and on dividend payments had reduced the Union 
Pacific to the verge of bankruptcy. When the 
deluded Charles Francis Adams became Presi- 
dent in 1884, he found a floating debt of $10,- 
000,000 which had been allowed to accumulate, 
while Gould, under cover of dividend payments, 
unostentatiously disposed of his stock. But that 
was not all. As Adams plaintively remarked to 
the investigating committee of 1887, "In 1883 
everything came on the Union Pacific at once. 
Before that time it was earning enormously" 
(Gould evidently induced him to believe that it 
was), "but at that time the Northern Pacific was 
completed through, which affected us very se- 
verely on Pacific Coast business, and on Mon- 
tana business very severely indeed. The Den- 
ver and Rio Grande was completed through to 
Ogden, which affected us on business to Salt 
Lake. At the same time the Southern Pacific 
was completed through, which affected us on 
business to San Francisco and the Pacific. And 
almost at the same time the Horn Silver Mines 
ceased to be productive. The result was that our 
business fell off, if I recollect right, $4,000,000 
in one year. At the same time our rates were re- 
duced, and our expenses were necessarily in- 
creased."^° 

ooPacific Railway Commission; testimony of Charles Francis 
Adams, Vol. I, p. 85. 



86 GREAT FORTUNES. 

Adams at once introduced a policy of retrench- 
ment — $16,000,000 was put into the property, 
one-half raised from the net revenues, while the 
stockholders went without dividends, the other 
half, from the sales of securities in the treasury. 
But the debt of the road continued to increase, 
and Gould, who had found it financially embar- 
rassed, now left it in straits. His experience with 
the Erie had been repeated in certain respects, al- 
though his career had not been so spectacular. In 
both cases, he had profited as an individual; as 
for the roads, that is another story. Later he 
was to return and tender an unavailing succor to 
the Union Pacific,^ ^ but meantime his interests 
had veered in another direction, and he was bus- 
ied in organizing an elaborate system of railroads 
in the southwest. 

Gould secured an interest in the Wabash, St. 
Louis, and Pacific in 1879,^" about the time that 



51 When the Adams management became hopelessly involved, 
Gould and Sage came to its assistance with loans. A large part 
of the floating debt was controlled by them, and, at the end of 
1890, they took charge of the property, retired Adams and in- 
stalled Sidney Dillon in the Presidency. In August, 1891, Gould 
contributed $5,000,000 to a syndicate formed to guarantee the 
floating debt, which, by that time, had attained enormous propor- 
tions. However, there was little to be got out of a continued 
active connection with the road. Its fate was clear to the most 
optimistic, and it was known several months before Gould's death 
that he was to withdraw from all participation in its concerns. 

Cf. Bradstreet's, Vol. XVIII, p. 760: Vol. XIX, pp. 66, 516; 
Vol. XX, p. 961. 

52For the details which follow cf. Poor's Manuals for the 
period and the Commercial and Financial Chronicle. 



JAY GOULD. 87 

he bought control of the Missouri Pacific. In the 
same year, he became a director of the Denver 
and Rio Grande, then in process of building. 
Early in 1880, he, together with certain other di- 
rectors of the Union Pacific, appeared on the 
board of the Texas and Pacific.^^ After a strug- 
gle for control, he also forced his way into the 
Missouri, Kansas and Texas, whither he was 
again followed by the ubiquitous Union Pacific 
directors.^* But his purchases did not stop 
there. In December, 1880, he secured a majority 
interest in the International and Great Northern, 
and, about the same time, he bought 70,000 shares 
of the stock of the St. Louis, Iron Mountain and 
Southern. It was conjectured that 40,000 shares 
of the stock of this latter road were obtained for 
somewhat less than $2,000,000^^ — a sum by no 
means small, however, in view of the fact that 
the road showed a deficit of more than $180,000 
for the preceding year. During this period, 
Gould also undertook to build a new road, the 
New York, Lackawanna and Western, having 

53The Texas and Pacific went into the hands of receivers in 
1885. After being sold under foreclosure proceedings in 1887, 
Gould still remained in possession, and held the Presidency at the 
time of his death. 

54This company was bankrupt at the time when Gould acquired 
control. 

55Commercial and Financial Chronicle, December 18, 1880, Vol. 
XXXI, p. 653, 



88 GREAT FORTUNES. 

previously secured the co-operation of capital- 
ists interested in the Delaware, Lackawanna and 
Western. This last-named project was part of 
an elaborate scheme to provide an eastern outlet 
for the Wabash by means of the Great Western 
of Canada and the Delaware, Lackawanna and 
Western. 

Having thus provided for his eastern connec- 
tions, and having secured a firm hold on the 
southwestern traffic situation, Gould proceeded 
to carry out his plans of organization. The 
Missouri Pacific was consolidated with the St. 
Louis and Lexington, the Kansas City and 
Eastern, the Lexington and Southern, the St. 
Louis, Kansas, and Arizona, the Missouri River, 
and the Leavenworth, Atchison, and Northwest- 
ern railroads. ^^ In accordance with his customary 
methods, Gould made this consoUdation the occa- 
sion for an increased stock issue of $12,419,- 
800. In December, 1880, the Missouri, 
Kansas, and Texas was leased to the Mis- 
souri Pacific, the rental to be the net earnings of 
the leased Hne.^^ In 1881, the Missouri Pacific 

5676W., August 21, 1880, Vol. XXXI, p. 305. 

57The lease was abrogated in 1988, the accrued interest in ex- 
cess of the surplus earnings being larger than the amount that 
could be advanced by the Missouri Pacific under the terms of 
the lease. From January 1st to June 30th, 1891, the road was in 
the hands of a receiver, and the net earnings had to be applied 
to repairs of the property. 



JAY GOULD. 89 

acquired the ownership of the St. Louis, Iron 
Mountain, and Southern by giving three shares 
of its stock for four of the latter road. In March, 
the stockholders of this road had voted a $2,000,- 
000 bond increase, and had authorized an addi- 
tion to its capital stock of $12,000,000, all this 
being done in view of the fact that the company 
had been unable the preceding year to meet the 
interest on its first and second income bonds. In 
accordance with the plan for a general union, the 
International and Great Northern was taken 
over by the Missouri, Kansas, and Texas, the 
exchange of stock being at the rate of two to 
one in favor of the latter road. The Internation- 
al and Great Northern ran through Central 
Texas, and was a very important adjunct of the 
Missouri Pacific, which thereby secured an outlet 
to the Gulf. However, in the usual fashion of 
the mismanaged, debt-burdened Gould proper- 
ties, it defaulted in its interest payments several 
years later, and the lease was abrogated. 

While all this was in progress, the Wabash had 
entered upon a career of positively voracious ex- 
pansion. In 1880, a new $50,000,000 mortgage 
had been authorized°^ to furnish the wherewithal 
for retiring certain bonds, for building new lines, 

680nly $17,000,000 of this new mortgage was issued, 



90 GREAT FORTUNES. 

for buying bridges and barges. The next year, 
the Wabash entered into an agreement with the 
Central of New Jersey^ ^ and with the Pennsyl- 
vania, whereby the latter agreed to transmit 
freight, delivered to it by the Central, over its 
own lines, to the Wabash at Red Bank.®^ Not- 
withstanding all these elaborate schemes for an 



69The history of Gould's later connection with the Central ot 
New Jersey is typically interesting. President Gowen of the 
Baltimore and Ohio thought the Central would give his road an 
excellent outlet to New York, and as Gould manifested no con- 
cern whatever, he proceeded, with the aid of the Vanderbilts, to 
purchase control. The Reading and the Baltimore and Ohio in 
concert secured 99,000 shares of stock, and the directors in power 
in the Central were thereupon confidently requested to resign. 
The sole reply to this demand came in the form of a bill, which 
Gould with the assistance of the Pennsylvania Railroad lobby 
succeeded in rushing through the New Jersey legislature. This 
bill authorized the Central to increase its capital stock to an 
amount necessary to pay off a bonded indebtedness of $8,000,000, 
which was payable on demand. This meant a possible stock issue 
of 80,000 shares, of which the Baltimore and Ohio-Reading crowd 
would be forced to purchase over 40,000 in order to retain control. 
Truly, the days of the Erie had not been forgotten ! A suit was 
promptly begun to estop the new issue, on the ground that the 
charter provisions of the road forbade such an increase in its 
capital stock without the consent of two-thirds of the stockhold- 
ers. A temporary injunction was granted, and was still in force, 
when the time for a new election arrived. The board decided not 
to call a meeting. Their opponents, relying upon an old New 
Jersey statute, which provided that, where the directors failed to 
call an annual meeting, it could be called by any five stockholders 
by giving ten days' public advertisement, proceeded to call a 
meeting for May 5th, ToS2. The Chancellor granted an order 
forbidding an election at the time set, but finally fixed a day in 
June for a new election — the first one held in eight years! Thus 
Gowen finally succeeded in securing a victory over Gould. 

Cf. Commercial and Financial Chronicle, Vol. XXXI V. 

«oThe Wabash was preparing to extend its line to this point. 
In 1882, the New York, Lackawanna and Western was leased in 
perpetuity to the Delaware, Lackawanna and Western. The ques- 



JAY GOULD. 91 

extension of its operations, the Wabash passed 
the dividend on its preferred stock the very next 
year. Small wonder, when the company had as- 
sumed the obligations of all the miserably 
equipped Kttle roads in its vicinity! A part of 
the January interest, moreover, was only met by 
taking up and selling some bonds on which a 
loan had previously been negotiated. In April, 
1883, the Wabash was leased to another Gould 
property, the St. Louis, Iron Mountain, and 
Southern, the rental to be its net earnings. The 
reason for such an apparently perfunctory trans- 
action is probably explained by a statement which 
appeared in the Commercial and Financial 
Chronicle at the time.^^ A guess was hazarded 
that Gould found it necessary to retain the Wa- 
bash in order to prevent the injury to the Mis- 
souri Pacific which would result from its going 
into the hands of a receiver. By leasing the road 
to one of his own lines for its net earnings sim- 
ply, he ran no risks, and he was relieved of the 
necessity of carrying the stock to keep control, 
and of making continual advances to the com- 
pany. 



tion of an eastern outlet for the Wabash became once more a 
problem— one which George Gould has been attempting to solve 
at the present day by purchases of certain small eastern lines. 

('■Wommercial and Financial Chronicle, April 21, 1883, Vol. 
XXXVI, p. 439. 



92 GREAT FORTUNES. 

However, it cannot be said that Gould as- 
sumed any chances of loss in making loans to 
bankrupt corporations. He had means of pro- 
tecting himself, not vouchsafed to the ordinary 
bondholder or stockholder. For instance, when 
the Wabash finally defaulted in the interest on its 
general mortgage bonds, in 1884, the notes given 
by Gould, Sage and Humphreys to take up its 
floating debt were speedily protected by the issu- 
ance of receivers' certificates in exchange for 
them. A rather acrid, but, no doubt, approxi- 
mately correct review of Gould's conduct of this 
unwieldy company appeared in the Commercial 
and Financial Chronicle shortly after the road 
had been precipitated into bankruptcy. "Among 
all Mr. Gould's railroad operations, none has 
been more striking than that in connection with 
Wabash. How the company was raised from 
deep insolvency; how Cyrus W. Field allowed 
himself to be made President for a time; how 
stock was bought up at almost nothing and sold 
out at fabulous prices; how the leases of innum- 
erable lateral roads were made at immense rent- 
als; how stock was listed in London; how the 
general or blanket mortgage bonds were created 
and widely distributed to the amount of $17,- 
000,000, furnishing the required cash for a sea- 
son; how the famous dividend of November, 



JAY GOULD. 98 

1881, was declared on the preferred stock, when 
the company was already known to have a large 
deficit; the unloading of insiders on the strength 
of that dividend; the leasing of the Wabash to 
the St. Louis and Iron Mountain Railroad, giv- 
ing control of the road without the ownership of 
a share of stock; the advance of money by direc- 
tors ; the collateral trust loan — the dernier ressort 
of modern railroad financiers; the final insol- 
vency in June, 1884, and the appointment of one 
of the most prominent directors, a receiver; the 
issue of receivers' certificates to pay off notes en- 
dorsed by directors; the recent meeting in the 
nature of a funeral, at which Mr. Gould as Presi- 
dent showed his resignation (controUing, with 
the Iron Mountain, the chief assets of the de- 
ceased), and the managers' committee submitted 
their plan for the future resurrection, in which 
the unprofitable leases made by them are to be 
shaken off, the lien of the general mortgage ex- 
tinguished, the stockholders heavily assessed, and 
the directors are to be paid in cash — all the above 
circumstances contribute to make the history of 
Wabash, since Mr. Gould took it, one of the 
most remarkable and interesting that has ever 
occurred in American railroading. It is even 
phenomenal, embracing in a comparatively short 
period every phase of Mte-flying, watering, stock- 



94 GREAT FORTUNES. 

jobbing, bankruptcy of the company and assess- 
ment of its stockholders, which are so frequently 
commented on in London and Amsterdam, as 
being the common characteristics of American 
railroad management." ^^ 

With the purchase of a large interest in the St. 
Louis and San Francisco, in January, 1882, 
Gould secured control of all the roads leading 
into the southwest, save the Atchison, Topeka 
and Santa Fe, South of Kansas City and the 
Missouri River and east and south of Kansas, 
he had no competitors. The potential prosperity 
of an immense area was in great part at his dis- 
posal. The history of railroad management in 
the southwest became henceforth a history of his 
activities, and it does not speak well for him that 
that history should have been a dreary recital of 
bankruptcies, receiverships, and foreclosures. 

III. 

Apart from his railway holdings, Gould had 
but two large interests, and those were both in 
great public service corporations, connected with 
transportation — the Western Union Telegraph 
Company, and the Manhattan Elevated Railway 
Company. Gould early attempted to "break 

<iWommercial cmd Financial Chronicle, August 16, 1884, Vol. 
XXXIX, p. 183. 



JAY GOULD. 95 

into" the former, nor was he at all discouraged by 
the fact that the Vanderbilts were apparently in 
full control. There were other ways of securing 
an interest besides making direct stock purchases, 
and he was prepared to use those means without 
delay. As a first step toward the realization of 
his plans, he arranged to have himself and certain 
other directors of the Union Pacific declared trus- 
tees of the Atlantic and Pacific Telegraph Com- 
pany — an unpromising concern, indeed, but one 
well adapted to annoy the Western Union. It 
was announced, in June, 1874, that the contract 
of the Union Pacific with the latter company had 
been abrogated, and it was stated, furthermore, 
that the Atlantic and Pacific would thereafter 
compete for the California business. Moreover, 
the Atlantic and Pacific was about to construct 
an independent line from Omaha to Chicago, 
and it would soon have a system stretching from 
ocean to ocean. Notwithstanding these ambi- 
tious schemes, the company exliibited a deficit of 
$9,572 for the next year, but the management, 
by no means discouraged, authorized an increase 
of $5,000,000 in its capital stock, to be issued 
at 20. 

Meanwhile, the Atlantic and Pacific steadily 
cut rates, and speculation was rife, as to what 
action would be taken by the Western Union. It 



96 GREAT FORTUNES. 

was soon evident; in 1887, the companies agreed 
to pool their gross receipts, upon a basis of di- 
vision highly favorable to the Atlantic and Pa- 
cific.^^ Subsequent to this arrangement, 429 of- 
fices of the latter corporation were closed, and its 
reduced business made necessary a payment of 
$40,000 by the Western Union to make up its 
stipulated percentage quota of the gross receipts. 
Truly the bargain was not a bad one for Gould I 
But he was not satisfied, and, assuming control 
of a new concern, the American Union Telegraph 
Company, he harassed the Western Union more 
than ever. Coming forward once again in the 
guise of a pubhc benefactor, he let it be known 
that the American Union was designed to frus- 
trate the unlawful operations of such a powerful, 
grasping corporation as the Western Union. The 
public was invited to look on approvingly, while 
the American Union busily extended its network 
of wires. By January, 1880, 40,000 miles of line 
had been secured, and in the following July, an- 
other 12,000 miles were acquired, through the 
lease of the Dominion Telegraph Company of 
Canada. Radical rate reductions, varying from 

63Eighty-one and one-half per cent, of the gross earnings were 
to go to the Western Union; l'-2^> per cent., to the Atlantic and 
Pacific. Moreover, the Western Union agreed to purchase 72,503 
shares of the Atlantic and Pacific (over half its capital stock) at 
25, giving 12,500 shares of the Western Union and $912,560 in 
cash, in return. 



JAY GOULD. 97 

15 to 80 per cent., were instituted, and altogether, 
considering the patronage wliich Gould, as a 
great railroad magnate, could give to his new 
creation, the outlook seemed decidedly serious 
for the older company. The inevitable result was 
a consolidation, which was brought about in 
1881.*'* Gould and his allies thereupon assumed 
a position of dominance in the new Western 
Union, and at the time of Gould's death in 1892, 
the President of the company estimated his stock- 
holdings at $20,000,000. 

Gould believed in the earning powers of the 
Manhattan Elevated just as he beheved in those 
of the Western Union, and, once in control, he 
did not display his usual readiness to dispose of 
its stock. However, the way to power was, in 
the first place, devious, though profitable. The 
Manhattan Company had been organized solely 
for the purpose of leasing the New York and the 
Metropolitan Elevated railroads. It had guar- 
anteed a ten per cent, dividend on the stock of 
both these roads, as a condition of the lease, and 



6*The American Union received 150,000 shares of the Western 
Union for 100,000 shares of stock and $5,000,000 of bonds of the 
new company. The Atlantic and Pacific, which also entered the 
consolidation, obtained 84,000 shares in exchange for 140,000 of its 
own shares. The Western Union, at the same time, increased its 
capital stock $38,926,590, of which $15,526,590 went to the stock- 
holders of the original company, representing additions to con- 
struction, made since 1866. 



98 GREAT FORTUNES. 

it had at the same time issued $13,000,000 of its 
own stock, which represented nothing so far as 
could be seen but its capitaHzed expectations of 
profit. Suits were at once begun by dissatisfied 
stockholders of the underlying properties, ask- 
ing a dissolution of the new holding company. 
It became involved in all sorts of financial diffi- 
culties, and annoying litigation, which caused its 
stock to decline rapidly in value. The New York 
World (Gould's newspaper) published the 
gloomiest accounts concerning the Manhattan's 
probable future.^^ Its stock finally descended 
to 26 1-2 ; and the men in control began to sell 
heavily. About this time, it first began to be ru- 
mored that Gould was taking all the securities 
offered at these low prices,'''^ the stories published 
in his newspaper having, strangely enough, no 
power to terrify him. 

Meanwhile, as a result of the various suits 
which had been instituted against the company, 
receivers were finally appointed — Judge John F. 
Dillon and Albert C. Hopkins, both trusted lieu- 
tenants of Jay Gould.^^ The latter had been 
busily engaged in buying Manhattan stock for 
some time past, and he is said to have purchased 

esNew York Times, December 3, 1893. 
66Bailroad Gazette, June 17, 1881. 
6776id., July 15, 1881. 



JAY GOULD. 99 

70,000 shares at prices ranging from 16 to 20.*^^ 
Eventually, all the pending suits were called off, 
and a settlement was effected between the Man- 
hattan and the two other companies. When 
Gould became President of the reorganized com- 
bination in November, 1881, the stock, which had 
sold down to 16, was being quoted at 55. There 
was much grumbling about the mysterious fash- 
ion in which many troublesome suits had been 
quietly set aside, but there was nothing to be 
done. Gould, securely installed, was not to be 
lightly displaced, once he had made up his mind 
to stay. 

With the account just given, the tale of 
Gould's numerous activities has by no means 
been told, but the most important phases of his 
business career have been briefly recounted. In 
view of the number and variety of his interests, 
the diversity of the sources from which he drew 
his profits, it is significant, above all, to know that 
he had faith in but three of the corporations with 
which he was connected, as long-time paying in- 
vestments — the Missouri Pacific, the Western 
Union, and the Manhattan Elevated. There is 
need, perhaps, of no other commentary than this, 
to show the highly speculative character of the 
greater part of the gains amassed by him during 
the course of his lifetime. 

68 New York Times, Dec. 3, 1892. 



CHAPTER IV. 

GROUP FORTUNES: 

THE "STANDARD OIL" AND THE 
"MORGAN" MEN. 

AT the beginning of the seventies, a condition of 
-*• ^ indiscriminate competition prevailed within 
the petroleum refining industry, and gave im- 
petus to the movement, initiated by John D. 
Rockefeller, which early made for the union of 
the large interests composing what came to be 
known as the Standard Oil Alliance.^ By the 
close of the decade this Alhance was the most 
effective and powerful of all the industrial or- 
ganizations that had come into being, and when 
the trust succeeded the looser, extra-legal com- 
bination in 1882, it had an estimated capital of 
$70,000,000, of which the pipe-line interests were 
said to have constituted about one-third. 



iThe working arrangements of the "alliance" were close and 
effective because of the fact that the stock ownership of the 
varioiis companies composing it was distributed in such a way 
as to make the advantage of one member of the organization 
more or less the advantage of all. In other words, the derice 
of a "community of interests" was employed, with such good 
results, moreover, that by 1879 the association included from 90 
to 95 per cent, of the refining interests of the coimtry, besides 
ha\ing control of all the principal pipe lines for the transporta- 
tion of oil. 

Cf. Ida M. Tarbell, The History of the Standard Oil Company. 



GROUP FORTUNES. 101 

The early history of the methods whereby the 
Oil Trust, under the leadership of John D. 
Rockefeller, grew and prospered, is sufficiently 
familiar to need no elaboration. Having success- 
fully applied his energy and organizing abihty 
to the establishment of his private business, Mr. 
Rockefeller then turned his attention to the de- 
velopment of the trust. The conditions of the 
time, the policy of the railroads, immensely aided 
the task of amalgamation. As always, the alli- 
ance of transportation with trading and indus- 
trial interests gave a superiority within the com- 
petitive field out of all proportion to technical or 
personal advantages, although those were un- 
doubtedly great. Indeed, it is not always easy 
to see to what extent the immense gains of the 
"trust" were the result of more economical and 
better methods of production— to what extent 
they were due to competitively cheaper methods 
of marketing, an outgrowth of the peculiarly 
intimate relations maintained with the railroads, 
and, later, of the advantages due to the owner- 
ship of an elaborate pipe-Hne system. But this 
much may be conceded: however persuasive Mr. 
Rockefeller may have been, he must needs have 
acquired control of a concern boasting some de- 
gree of effectiveness before he could demand spe- 
cial consideration from the railroads, even in 



102 GREAT FORTUNES. 

those days of unlicensed competition. Neverthe- 
less, such favors once obtained, the process of 
growth was enormously facilitated, quite apart 
from differences in personal shrewdness or im- 
provements in technical processes. When, as in 
this case of the Standard Oil Trust, extra-indus- 
trial competitive advantages were combined with 
technical superiority, immense gains were sure to 
result and the process of monopolization was cer- 
tain to continue. 

By 1888, the trust was earning dividends of 
from $16,000,000 to $20,000,000 on a capitaliza- 
tion of $90,000,000; and, in view of these large 
returns, it might have been expected that the in- 
vestments of the men in control of the Standard 
Oil properties would be found to be of consider- 
able extent. But in point of fact, their outside 
interests do not seem to have been of any great 
importance prior to 1887 or 1888. Clearly, there 
were no evidences of that unanimity of action in 
the placing of investments which has later op- 
erated to make the so-called Standard Oil group 
a power in the industrial and financial world at 
large. Then they were pre-eminent in only one 
field of activity — that of petroleum refining. The 
explanation of this fact is not far to seek. In the 
earlier days large dividend payments could be 



GROUP FORTUNES. 103 

very profitably reinvested in the business from 
which they were derived — in improvements in 
processes, in additions to holdings, and in the de- 
velopment of allied and subsidiary industries. 
The pipe-line system, for example, which had 
been so effectively extended, had required large 
expenditures for the purchase of competing lines 
and the building of new ones. The utilization of 
by-products, too, had been largely undertaken 
since 1875, while natural gas, being found in the 
neighborhood of the oil fields and requiring sim- 
ilar methods of piping and drilling, offered an- 
other obvious avenue of investment. But, al- 
though with this growth in size and comprehen- 
siveness, and with increased economies of produc- 
tion, dividends were becoming progressively 
larger, the opportunities for their reinvestment 
were none the less rapidly diminishing. A time 
must come when profits would grow to be suffi- 
ciently unwieldy to present a serious problem in 
investment, and that time seems to have been 
reached toward the close of the eighties. 

All this does not mean that there had been no 
outside investments whatever prior to the period 
in question. Individual members of the Stand- 
ard Oil Trust had without doubt been connected 
with other fines of activity, notably with the rail- 



104 GREAT FORTUNES. 

roads of the country.^ But none of these early in- 
vestments are of particular importance as evi- 
dencing an extension of the group interests. 
They seem to have been purely personal matters, 
and as such they are significant only as indica- 
tions of the probable direction to be taken by 
later and more important investments. As has 
been said, the period of general group expan- 
sion does not begin until 1887 or 1888. In the 
former year John D. Rockefeller became a mem- 
ber of the syndicate that bought out the Minne- 
sota Iron Company.^ Following the change of 
management, Benjamin Brewster and Henry M. 



2For example, Henry M. Flagler appeared on the directorate 
of the Valley Railroad Company in 1879. In 1882 William Rocke- 
feller became director of the Chicago, Milwaukee and St. Paul. 
Benjamin Brewster, a holder of Standard Oil certificates, was 
perhaps more especially a railroad man prior to 1881, when he 
became \ice-pres)dent of the National Transit Company (the 
Standard Oil pipe-line organization). He had been interested in 
the construction of the Chicago, Rock Island and Pacific, becom- 
ing a director of the company in 1879 and continuing his con- 
nection with it until his death in 1897. Jabez A. Bostwick (one- 
time president of the American Transfer Company, and later 
trustee and treasurer of the Standard Oil Trust) also had large 
individual interests in railroads. In 1886, he became president of 
the New York and New England, and about the same time 
acquired stock holdings in other New F-ngland roads. 

Concerning Brewster, ct. Railway and Engineering Review, 
Sept. 11, 1897, Vol. XXXVII, p. 530; concerning Bostwick, cf. 
Railroad Gazette, December 17, 1886; concerning Flagler's appear- 
ance on the directorate of the Valley Railroad, cf. Poor's Manual, 
1879; concerning William Rockefeller, director of the Chicago, 
Milwaukee and St. Paul, cf. Poor's Manual, 1882. 

^Commercial and Financial Chronicle, May 21, 1887, Vol, 
XLIV, p. 653. 



GROUP FORTUNES. 105 

Flagler were elected directors of the company as 
well as of its railroad, the Duluth and Iron 
Range, leaving no doubt that the "Standard" 
(to use the term in a newer, more detached sense) 
was interested.* About 1887, or somewhat later. 
Rockefeller interests appeared in the Northern 
Pacific and in the Missouri, Kansas and Texas,^ 
while in 1888 Wilham P. Thompson, C. W. 
Harkness, Charles Pratt, and Oliver H. Payne 
— all Standard Oil men in high standing — en- 
tered simultaneously the directorate of the Ohio 
River Railroad Company. Evidences of an or- 
ganized expansion of investment interests are 
therefore not lacking to afford justification for 
dating the beginning of a second period of de- 
velopment from this time. During the new era 
Standard Oil holdings ceased to be regarded as 
trust stocks simply; they also included the out- 
side investment interests of members of the 
group. 



*Poor's Manual of Railroads, 1888. 

Commercial and Financial Chronicle, June 7, 1890, Vol. L, 
p. 801, says, "Parties familiar with the affairs of the company 
(i. e., the M. K. & T.) remark that the presence on the board 
of Mr. Freeman, Treasurer of the Standard Oil Company, and Mr. 
Colgate Hoyt, the Standard Oil representative in Northern Pacific, 
is a feature of the reorganization as accomplished. It emphasizes 
the fact that the Standard Oil people whom Mr. Enos has repre- 
sented for over two years in his relations with the property 
continue to have a large and active interest in the road." 



106 GREAT FORTUNES. 

Notwithstanding the nature of the expansion 
that was taking place, the trust was nevertheless 
still recognized as the nucleus from which the 
larger, more exclusively financial alliance took its 
growth. Men interested directly in the Stand- 
ard Oil Trust formed the Standard Oil group; 
and it was not until some years later, when this 
connection had become exceedingly attenuated, 
that the trust sank into a position of relative in- 
significance. Meanwhile the members of the 
group continued to augment their wealth and to 
add to the variety of their investment interests 
with a facility deserving of comment. It is true 
that the methods whereby large industrial con- 
cerns or single individuals compel or otherwise 
induce their weaker competitors to join with 
them or else be forced out of business have be- 
come fairly familiar from constant iteration. But 
less space has been given to discussion of the 
means by which a group of investors (dating 
their union from some enterprise undertaken in 
common) may further extend their control by 
proceeding against the property of unorganized 
alien interests. The more powerful the group 
and the greater its resources, the more numerous, 
of course, are its opportunities to gain by such 
operations. It may, perhaps, obtain a foothold 
in legitimate commercial fashion, by extending 



GROUP FORTUNES. 107 

aid to the financially embarassed upon terms fav- 
orable to itself. Or it may increase its holdings 
by direct purchase, by gradual acquisition, or by 
other means. 

A narration of the incidents leading up to the 
acquirement of control of certain Minnesota iron 
ore properties by the "Standard" affords an ex- 
cellent illustration of the methods whereby this 
earlier extension of investment interests was prof- 
itably and easily effected. The owners of the 
Mountain Iron and Biwabik mines — two rich 
properties of the Mesaba range — had been en- 
gaged in building a railroad, the Duluth, Missabe, 
and Northern, from the mines to the lake.® 
Early in 1892 they became involved in financial 
difficulties, and at tliis juncture they were ap- 
proached by an agent of Mr. Rockefeller, who 
offered them a loan of $1,600,000, in return for 
which the Duluth, Missabe, and Northern, and 
the mining companies owned by those interested 
in the road, were to contract to ship ore in the 
vessels of the American Steel Barge Company^ 
for a number of years. The original bond issue 
of the road was also to be retired and a new issue 



eiron Age, January 7, 1892, Vol. XLIX, p. 16; also ihid., Feb- 
ruary 4, 1892, p. 198. 

"The American Steel Barge Company was a Rockefeller prop- 
erty; cf. Iron Age, December 29, 1892, Vol. L, p. 1281, 



108 GREAT FORTUNES. 

of $2,000,000 to be put up as collateral for the 
loan.^ Having quelled opposition to this plan 
by purchasing the interests of certain minority 
shareholders^, the newly-formed syndicate pro- 
ceeded to buy a number of valuable properties. ^^ 
Early in 1893 rumors of a pending consolidation 
began to be rife. It was an especially propitious 
time to conduct negotiations aiming at the con- 
trol or acquisition of mines. The panic of 1893 
was on; ore producers were in desperate straits; 
mines were shutting down; loans on any terms 
were desired. The situation emphasized the ad- 
vantage possessed by a wealthy group of invest- 
ors with judiciously distributed holdings and 
well established banking connections. The men 
in control of the Duluth, Missabe, and Northern 
needed assistance, as did the rest of the mine 
owners. They therefore secured, through the 
vice-president of the American Steel Barge Com- 
pany a loan of $432,575, for which they gave 
their notes secured by shares of stock of the 
Mountain Iron and the Missabe Iron companies, 



^Iron A oe, December 29, 1893, Vol. L, p. 1281 ; also Iron Trade 
Review, June 6, 1895, Vol. XXVIII. 

9For mention of the controversy preceding a sale of minority 
interests, cf. Iron Age, February 2, 1893, Vol. LI, p. 249; Bail- 
tcay Age, February 10, 1893, Vol. XVIII, p. 123. 

lojron. Age, March 16, 1893, Vol. LI, p. 622; ibid., April 13, 
1893, p. 858! 



GROUP FORTUNES. 109 

and the Duluth, Missabe, and Northern Rail- 
way/^ It is highly probable, too, that direct 
loans were made them/^ At any rate, it soon 
became evident that the transaction was but an- 
other step in the direction of an ultimate shifting 
of control. 

In September, 1893, rumors of a pending con- 
solidation became justified by the formation of 
the Lake Superior Consolidated Iron Mines 
Company, which took over the majority interests 
of some ten or eleven Mesaba mines, the Duluth, 
Missabe, and Northern Railway (with its ore 
docks), and the Rockefeller interests on the Go- 
gebic range and in the Spanish- American mines 
of Cuba.^^. The consolidation had been effected 
but a short time when it became evident that the 
original mine owners and railway projectors had 
been dispossessed of control. A series of dis- 
putes and litigations arose, some of the owners 
claiming that the stock offered as collateral for 
loans had been unlawfully disposed of ;^^ others 



iiCf- tacts disclosed in suit of Merritt et al. vs. American Steel 
Barge Company, Federal Reporter, LXXIX, p. 228. 

i2New York Tribune, June 15, 1895. 

i37ro% Age, September 7, 1893, Vol. LII, p. 444. 

KThe Merritt brothers had contributed to the consolidation 
51 per cent, of the share capital of the Mountain Iron, the Biwabik, 
and the Mesaba Mountain mines in addition to other properties 
(cf. Iron Age, July 21, 1893). In 1894 they brought suit against 
the American Steel Barge Company to recover the value of 13,313 



110 GREAT FORTUNES. 

asserting that their property had been taken over 
at unjustly low valuations, as the result of mis- 
representation.^^ Matters were not completely 
adjusted until sometime in 1897. Meanwhile 
the company once witliin the control of wealthy 

shares of stock in the recently formed Lake Superior Consolidated 
Iron Mines Company. The loan of $43:3,575 obtained from 
Wetmore (of which mention has been made) was secured by 
stocks of the Mountain Iron and Missabe Iron Companies, and the 
Duluth, Missabe and Northern Railway — which stocks were not 
to be repledged nor disposed of in any way. Wetmore, however, 
transferi'ed all the railway stocks to Mr. Rockefeller — as a pledge 
for a debt, he said. The Merritts agreed to let this pass as a sale 
of stock for their benefit, although a short time before the same 
man had converted $90,000 worth of their bonds to his own use, 
upon which occasion they had elected to "waive the tort com- 
mitted." It is no surprise, therefore, to learn that Wetmore later 
sold the promissory notes and the rest of the pledged stocks in 
his possession to the American Steel Barge Company, of which 
he was vice-president and managing officer. The stocks were sub- 
sequently converted into shares of the Lake Superior Consolidated 
Iron Mines Company. Upon maturity of the notes, the Barge 
Company brought suit in a New York court and secured a decision 
authorizing the sale of the notes and collateral, the latter being 
bought in by the company for $35,000. The Merritts had pre- 
viously sued the Barge Company for the value of this collateral, 
but, the suit being brought in a Minnesota court, it was held that 
the decision of the New York court rendered first constituted a 
bar to action. Had the Merritts sued for the return of their 
stock, the Minnesota court, as having first jurisdiction, would 
have been entitled to retain it, since it would have been com- 
pelled to take possession of personal property. The decision of 
the L^nited States Circuit Court was reaffirmed March 1, 189T, by 
the Circuit Court of Appeals. 

Cf. suit Merritt ct al. vs. American Steel Barge Co., Federal 
Reporter, Vol. LXXV, p. 813; and Vol. LXXIX, p. 228. 

isAnother suit afterward compromised was brought by the 
Merritts on the ground that the Spanish-American and Gogebic 
properties were taken into the consolidation at greatly inflated 
values. 

Cf. Federal Reporter, Vol. LXXVI, p. 909, Rockefeller vs. 
Merritt. For conjectures as to the terms of settlement, cf. Iron 
Trade Review, February 18, 1897; Iron Trade Review, March 4, 



GROUP FORTUNES. Ill 

financiers rapidly acquired new mines both by 
lease and by purchase, while the Duluth, Missabe, 
and Northern soon had a practical monopoly 
of the ore transportation of the range. 

The most important development, however, 
of the period under discussion lay not in the ac- 
quisition by the Standard Oil Group of valuable 
mining properties, but in the addition to its re- 
sources of substantial banking facilities. The 
alHance with the National City Bank had pre- 
sumably been established by 1894, and although 
the bank was by no means in a position of such 
exceptional power as at present, its connections 
were nevertheless extensive. ^^ Thus the members 
of the group found the process of fortune accu- 
mulation further facilitated, because of the ease 

1897, Vol. XXX; New York Tribune, February 13, 1897. For 
details concerning the McKinley properties cf. Iron Age, June 23, 
1893, Vol. LI, p. 387. Regarding controversies, cf. Iron Age, May 
30, 1895, Vol. LV, p. 1136; Iron Trade Review, June 6, 1895; ibid., 
June 13, 1895. Concerning "terms of settlement," cf. ibid., August 
15, 1895, Vol. XXVIII. 

lelt had a large representation in the United States Trust 
Company and in the Farmer's Loan and Trust Company. Its 
president; James Stillman, was a director of the New Yorls 
Security and Trust Company, and two of its directors were also 
on the board of the Bank of the State of New York. Moreover, 
William Rockefeller was director both of the Hanover National 
Bank and of the Leather Manufacturers' National Bank. Other 
important financiers interested in the bank were connected with 
outside ventures, as for instance the Consolidated Gas Company, 
of which Percy R. Pyne (president of the National City, 1883-91), 
and Samuel Sloan (vice-president of the National City) had 
been directors since its formation in 1884. That the National 
City interests in this company in 1894 were quite hea\y is evi- 



112 GREAT FORTUNES. 

with which credit accommodations could be se- 
cured in aid of new projects. 

Sufficient evidence has now been adduced to 
make it apparent that by 1893 or 1894 Standard 
Oil had developed into an important investment 
power, controlling a vast amount of wealth. 
Standard Oil men had gained entrance into rich 
ore properties, such as the Minnesota Iron Com- 
pany and the Lake Superior Consolidated Iron 
Mines Company. They were in western rail- 
roads, such as the Northern Pacific and the Mis- 
souri, Kansas, and Texas. They had holdings 
in eastern roads (the New York, New Haven 
and Hartford, the Ohio River Railroad Com- 
pany, and the Delaware, Lackawanna and West- 

denced by the fact that besides the two men just mentioned, 
Roswell G. Rolston, Moses Taylor Pyne, and James Stillman were 
on its directorate. 

The National City contingent also figured prominently in rail- 
roads. Stillman had long been interested in western roads. He 
was director of the Chicago, Milwaukee and St. Paul from 1879 
to 1889, and he had held a place on the directorates of several 
smaller railroads. In 1893 he became director of the Delaware, 
Lackawanna and Western, with which William Rockefeller had 
been connected since 1890, and of which Samuel Sloan was presi- 
dent at the time (1893). Moses Taylor, president of the National 
City from 1855 until his death in 1882, had been identified with 
the road during his lifetime. He had also been interested in the 
Western Union Telegraph Ccmpany, and the presence of Samuel 
Sloan and Percy R. Pyne on the directorate of the latter com- 
pany in 1894 would indicate that the interest of the National City 
thus acquired had not been relinquished. 

For facts concerning Moses Taylor, cf. Rhodes' Journal of 
Banking, May, 1882; Bankers Magazine, May, 1882; for the 
accession of Stillman to the presidency of the National City, see 
Bankers Magazine, December, 1891; cf. also lists of directors of 
Poor's Mamml of Railroads. 



GROUP FORTUNES. 113 

ern). Some of the group were identified with 
the National Lead Company, successor to the 
Lead Trust, 1891; others, probably, with the 
American Cotton Oil Company.^' Standard Oil 
men had acquired interests in street railway and 
electric-lighting properties, to wit, the North 
American Company ;^^ and finally they were al- 
hed (more correctly, perhaps, identified) with 
the financial interests in control of the National 
City Bank and its afiiliated institutions. 



I'The American Cotton Oil Trust was formed in 1884. It was 
generally believed at the time that it had Standard Oil men 
among its backers, although no substantial evidence was adduced 
to support such a belief.^ Cf. for instance, J. S. Jeans, Trusts, 
Fools, and Corners, Chap. VIII, p. 101. It is reasonably certain 
that Standard Oil men were interested in the National Lead 
Trust. Indeed, W. P. Thompson, at one time secretary of the 
Standard Oil Company of Ohio, became president of the Lead 
Trust about two vears' after its formation, at the solicitation, as 
he himself says, of Charles Pratt and H. H. Rogers. "In 1880 
my friends, H. H. Rogers and the late Charles Pratt, both of 
whom had had large experience in th*" lead and paint business, 
kno\ving that I was about to retire from my association with the 
Standard Oil Company, called my attention to the fact that 1;he 
National Lead Trust was desirous of my becoming interested with 
them." Cf. Depew, One Hundred Years of American Commerce, 
Vol. II, Chap. LXI^% p. 440, The Lead Industry, by William 
P. Thompson. 

isThe North American Company was originally intended to 
take over the assets of the Oregon and Transcontinental Com- 
pany. It was later empowered to acquire stock of street rail- 
way and lighting properties. Charles L. Colby, the first vice- 
prf^sident of the company, had been frequently associated with 
Mr. Rockefeller; Colgate "Hoyt, a member of the board of direc- 
tors, represented the Rockefeller interests in the Northern Pacific ; 
E. D. Bartlett was also a director. 

Iron Age, April 13, 1893, Vol. LI, p. 858; cf. also Commercial 
and Financial Chronicle, November 1,5, 1890, Vol. LI, p. 680; ibid., 
June 3, 1893, Vol. LVI, p. 931. 



114 GREAT FORTUNES. 

But the fact that the group had secured recog- 
nition as a force in the investment world at large 
did not mean that its evolution was complete. It 
was merely in a position to enter upon a new era 
of wealth expansion, furnisliing some striking 
parallelisms with the early period, when mem- 
bers of the Standard Oil Trust were struggling 
to extend their hold on the petroleum-refining in- 
dustry. Then, they had gained in wealth and 
power by allying themselves with tlieir most im- 
portant competitors in the field, and tlius had 
come to enjoy all the profits incident to a monot)- 
oly. But the competitors in this more compre- 
hensive struggle were not to be refiners of petro- 
leum, but groups of financiers representing im- 
portant and highly diversified industrial and 
financial interests. Competition among these 
groups was quite a different matter from compe- 
tition within the limits of a single industry, cov- 
ering as it did so wide an investment field. Ob- 
viously, when such opposing forces contended 
one against another, the results were certain to 
prove much more far-reaching than if the several 
group holdings had been confined to but one line 
of investment. Should "Standard Oil" secure a 
position of dominance among these competitive 
groups, what limits could be placed upon the pos- 
sibilities of fortune getting held out to its mem- 



GROUP FORTUNES. 115 

bers? They would then enjoy monopohstic ad- 
vantages, not alone within a single industry, but 
over an immense field of trade and transporta- 
tion. 

It is, in fact, possible to trace the growth of a 
communit}^ of interests and to adduce certain 
facts which seem to indicate that this particular 
group, namely, the Standard Oil, may sometime 
come to dominate the entire investment field, as 
the smaller unit long ago came to control the in- 
dustry of petroleum refining. First, however, 
it will be necessary to touch briefly upon certain 
facts relating to a number of the important 
groups of investors who were brought into rela- 
tions with Standard Oil in the course of the next 
few years. 

In 1893, a date which marks a turning point in 
the financial history of the country, the Goulds 
and the Vanderbilts were still in the ascendancy. 
The men in control of the Pennsylvania Railroad 
were also a force in the community, while Hunt- 
ington in the Southern Pacific wielded a power- 
ful one-man control. But all these interests, ex- 
tensive though they might be, were more or less 
jealously confined to a single investment field — 
railroads. The Vanderbilt power was grounded 
almost exclusively upon its control of the New 
York Central and subsidiary lines. Outside of 



116 GREAT FORTUNES. 

the Western Union Telegraph Company, the 
Goulds may be said to have had no important 
holdings in other than railroad securities. Harri- 
man had not yet been spoken of in connection with 
Standard Oil, and the Moores were unknown save 
as organizers of the New York Biscuit and Dia- 
mond Match companies.^^ Morgan was still in 
a subordinate position as an ally of the Vander- 
bilts. In fact, the firm of Drexel, Morgan and 
Company, though well estabhshed and enjoying 
influential financial connections, had apparently 
been chiefly occupied up to that time with plac- 
ing the investments of its rich clients. Nothing 
had been heard of the so-called Morgan railway 
systems, steamship lines, or steel trusts. But 
with the financial disturbances of 1893, which 
led to the bankruptcy of so many railroads, came 
the rise of the Morgan group as an independent 
investment power— a development almost spec- 
tacular in its suddenness. 

The first of the railroad reorganizations un- 
dertaken by the firm was that of the Richmond 
and West Point Terminal Railway and Ware- 
house Company. In this case the security hold- 
ers themselves made application to Drexel, Mor- 



is For accounts of illegitimate speculation in the stocks of these 
companies carried on bv the Moores, cf. Commercial and Financial 
Chronicle, August 29, "isge, and October 10, 1896. 



GROUP FORTUNES. 117 

gan and Company, who, after one refusal, at 
length agreed early in 1893 to take charge of the 
reorganization, upon assurances of a strict com- 
pliance with their terms.^^ By the close of 1894 
the new Southern Railway Company had been 
established, to operate upon a more conservative 
financial basis than its bankrupt predecessor. 
The stock of the company was placed in the 
hands of a voting trust consisting of J. P. Mor- 
gan, George F. Baker (president of the First 
National Bank of New York) , and Charles La- 
nier,^^ while Messrs. Spencer, Wright and Cos- 
ter, all of the firm of Drexel, Morgan and Com- 
pany, were placed on the board of directors.^^ 
The reorganization resulted in the Morgan inter- 
est being left in control of a road that later de- 
veloped into one of the great railway systems of 
the country. 

In February, 1893, the Philadelphia and 
Reading — the most important of the anthracite 
coal roads — went into bankruptcy. It was re- 
ported that Morgan- Vanderbilt interests had se- 
cured control of the company, but this report 



20Bradstreet's, April 22, 1893, Vol. XXI, p. 243; May 27, 1893; 
Vol. XXI, p. 329. 

^^Com,mercial and Financial Chronicle, November 10, 1894, 
Vol. LIX, p. 836. 

22lbid., October 27, 1894, Vol. LIX, p. 739. 



118 GREAT FORTUNES. 

was vigorously denied at the time. Morgan, 
however, eventually undertook to adjust the 
finances of the road,"^ and it was thought that he, 
as well as others associated with him, secured 
large amounts of the stock and preference bonds 
thrown on the market by holders unwilling to pay 
the twenty per cent, assessment announced under 
the reorganization plan."^ The road was sold 
under foreclosure, September, 1896, together 
with the Philadelphia and Reading Coal and Iron 
Company, and was purchased by the reorganiza- 
tion committee for $20,500,000.-^ When the re- 
organization was completed, the stock of the new 
Reading Company, wliich took over the securi- 
ties of the older road and its subsidiary proper- 
ties, was deposited with a voting trust consisting 
of J. P. Morgan, F. P. Olcott, president of the 
Central Trust Company, and one other selected 
by them. The first board of managers, moreover, 
contained three strong Morgan representatives.-^ 

■^3Bradstreet's, July 13, 1895, Vol. XXIII, p. 437. 

^iBraclstreet's, December 21, 1895, Vol. XXIII, p. 805; cf. also 
Poor's Manual of Railroads, 1896, pp. 805, 806. 

'i^Commerchil and Financial Chronicle, September 26, 1896, Vol. 
LXIII, p. .560. 

26C. H. Coster, F. L. Stetson, and George C. Thomas. (Cf. 
Poor's Manual of Railroads, 1896 and 18977) In 1901 Morgan 
secured control of the Central of New Jersey and turned it over 
to the Reading, upon payment, it is said, of a most adequate 
compensation. Cf. Report of the Industrial Commission, Vol. 
XIX, p. 461, 1902: "According to competent testimony before the 



GROUP FORTUNES. 119 

Similarly, the New York, Lake Erie and 
Western, which went into the hands of a receiver 
shortly after the Reading bankruptcy, came with- 
in Morgan's power,-" as did the Hocking Valley, 
which defaulted in its interest payments in 
1897."^ Later in the same year Morgan's as- 
sistance was invoked again in behalf of the Le- 
high Valley Railroad, as it was thought that, in 
view of the control he had come to exercise over 
certain coal roads, it would be to his interest to 
preserve the solvency of all of them.^** However 
that may be, the banking house of J. P. Morgan 



Industrial Commission, the price paid to the banking house of 
J. P. Morgan and Co., which secured control of the shares before 
selling them to the Reading Co., was the highest in the history of 
the Central Railroad of New Jersey." 

2 7 J. p. Morgan, l/ouis Fitzgerald, president of the Mercantile 
Trust Company, and Sir Charles Tennant, held the stock of the 
Erie in a voting trust, while Charles Coster, E. B. Thomas, Samuel 
Spencer, and F. L. Stetson were among the directors. The syndi- 
cate in charge of the reorganization agreed to provide $10,000,000 
for assessments on all stock not assenting to the plan proposed 
and to take $15,000,000 new prior lien bonds. Bradstreet's, August 
31, 1895. 

2 8The Hocking Valley defaulted in the interest payments on 
its consolidated 5's, of which Mr. Morgan was said to have been 
the largest individual holder, although he also owned a consid- 
erable amount of preferred stock. Cf. Commercial and Financial 
Chronicle, February 20, 1897, Vol. LXIV; February 37, 1897, 
Vol. LXIV. 

2 9lndeed, it v/as said at the time that through the absolute 
power of the Morgan interests in the Reading and the representa- 
tion which allied financial powers (Standard Oil and Vanderbilt 
representatives?) had obtained in the Delaware and Hudson and 
the Delaware, Lackawanna, and Western, it was believed that fully 
60 per cent, of the anthracite coal production of the country was 
in his hands. Cf. Bradstreet's, July 17, 1897, Vol. XXV, p. 453. 



120 GREAT FORTUNES. 

and Company agreed to adjust the finances of 
the road^^ — a task which was successfully per- 
formed, and by the beginning of January, 1901, 
Morgan men had come into undisputed control 
of this company."^^ Still another of the roads that 
went under during the period from 1893 to 1897 
came under the Morgan influence. It was the 
Northern Pacific, which became insolvent in 
1893, but because of complications due to the 
appointment of numerous receivers with con- 
flicting duties, was not reorganized until 1896, 
when the plan brought forward by J. P. Mor- 
gan and Company, with the co-operation of the 
Deutsche Bank of Berlin, was successfully exe- 
cuted. ^^ As a result of his interest in the North- 
ern Pacific, Morgan first came into relations with 
James J. Hill, president of the Great Northern, 
who was supposed to have bought largely of the 
Northern Pacific securities the year before. ^^ 
The two roads under the leadership of Morgan 
and Hill, respectively, thus came into harmonious 



3oCommercial and Financial Chronicle, March 13, 1897, Vol. 
LXIV, p. 516. 

s^Commercial and Financial Chronicle, June 34, 1899, Vol. 
I-XVTII, p. 1936; January 13, 1901, Vol. LXXII, p. 87. 

32Poor's Manual of Railroads, 1896. The syndicate subscribed 
.*45,000,000 for the purpose of carrying the plan through and of 
pro\'iding for working capital and improvements. 

^ ^Commercial and Financial Chronicle, May 18, 1895, Vol. LX, 
p. 874. 



GROUP FORTUNES. 121 

relationship some time before the Northern Se- 
curities Company was formed. 

By the end of 1897, as a result of the panic 
conditions of the preceding four years, Mr. Mor- 
gan together with his associates had succeeded in 
gaining a position of pre-eminence among the im- 
portant railroad groups of the country. He 
either had control, or was in a fair way to gain 
control, of four important coal roads — the Read- 
ing, the Erie, the Lehigh, the Hocking Valley. 
He held chief place in the Southern Railway and 
in the Northern Pacific system ; and he had come 
into amicable contact with James J. Hill, of the 
Great Northern.^^ A record such as this affords 
an excellent illustration of the ease with which 
powerful financiers (or individuals with power- 
ful financial backing) can enlarge their holdings 
in time of crisis. Then it is that opportunities 
for investment abound, and large capitalists com- 
ing to the aid of the financially embarrassed may 
freely dictate their own terms, in many cases de- 
manding a controlling interest in the companies 
requiring assistance. 



3*His railroad holdings have continued to enlarge since that 
time. The Southern Railway has made large additions to its 
mileage by the annexation of other roads. In 1903 Morgan came 
into control of the Louisville and Nashville, acquiring his interests 
from John W. Gates. Bradstreet's, October 4, 1902, Vol. XXX, 
p. 62T, 



122 GREAT FORTUNES. 

While the Morgan group was striding so rap- 
idly into prominence, Standard Oil had been 
strengthening its hold on properties already ac- 
quired. It had also entered into important con- 
tracts with the Oliver Iron Mining Company,^^ 
wliich was engaged in extensive operations on 
the Mesaba; and it had materially extended its 
gas interests, notably in the Brooklyn Union Gas 
Company,^^ incorporated in 1895 for the purpose 
of taking over control of the various gas compa- 
nies of that city. The same period (1893-97) 
saw the rise of another important group of finan- 
ciers — the Harriman-Kuhn-Loeb syndicate, 
which was soon to become generally recognized 
as a part of the larger Standard Oil group. ^^ 
The syndicate first attracted public attention as 
a result of its successful reorganization of the 

snAt that time five-sixths of the stock of the Oliver Iron 
Mining: Company was owned by the Carnegie Steel Company. Cf. 
James H. Bridge, Hisiorii of the Carner/ie Steel Company, Chap. 
XVTI, pp. 258-60. 

SGCommerciaJ and Financial Chronicle, June 15, 1895, Vol. LX, 
p. 1057; ibid., Sept. 14, 1895, Vol. LXI, p. 473. 

3"Of the early history of this group I am ignorant. I have 
seen a statement to the eiffect that its nucleus was the Illinois Cen- 
tral Railroad, of which Harriman had been a director since 1883. 
Cf. Commercial and Financial Chronicle, November 30, 1901, Vol. 
LXXIII, p. 1138; cf. also Poor's Manual of Railroads, 1883. As 
to whether Harriman and the banking house of Kuhn, I/Oeb and 
Co. had any connection with Standard Oil prior to the reorganiza- 
tion of the Union Pacific, I cannot say. Subsequent to the com- 
pletion of that reorganization in 1897 there is no doubt that Harri- 
man became the recognized representative of Standard Oil railroad 
interests. 



GROUP FORTUNES. 123 

Union Pacific. As early as 1895 it had been 
formed to carry out some plan looking toward a 
rehabilitation of the financial standing of the 
road, but nothing was accomplished until the 
property was sold under foreclosure in 1897. It 
was then bought in by a reorganization commit- 
tee which was in agreement with the syndicate 
headed by Kuhn, Loeb and Company.^^ 

After the reorganization had been carried 
through by the latter, E. H. Harriman appeared 
as chairman of the executive committee, of which 
James Stillman was also a member. Representa- 
tives of the Gould interests, which had ac?ain 
gained control of the Union Pacific in 1890,^^ still 
held place on the board of directors, but they 
were evidently no longer of first importance. It 
was significant, however, that there should be 
found identified with a single property adherents 
of three different groups. Clearly indications 
were not lacking of the manner in which there was 
gradually to be brought about an advance toward 
an increasingly comprehensive form of combina- 
tion, for the purpose of acquiring the gains made 
possible by a wide extension of investments. 

3 8 On agreement with the reorganization committee this syndi- 
cate provided $44,000,000 in cash, receiving in return for each 
$1,000' advanced, $1,000 par value 4 per cent, first-mortgage bonds 
and $500 par value preferred shares of the company. 

■3.^ Commercial and Financial Chronicle, November 29, 1890, Vol. 
LI, p. 748; directors' lists in Poor's Manual of Railroads. 



124 GREAT FORTUNES. 

Along with the growth of the raih'oad intei'- 
ests a new movement began to develop about the 
beginning of 1898; for with the return of pros- 
perity after a period of prolonged financial dis- 
tress there was a marked launching out of the va- 
rious groups of investors into the field of the "in- 
dustrials." Some years before, adverse court de- 
cisions had led to the abrogation of all trust 
agreements which had for the most part been 
succeeded by holding companies made possible 
by the New Jersey law of 1889.^'' A few new 
companies had also been formed, such as the Dia- 
mond Match Companj^ and the New York Bis- 
cuit Company (both Moore organizations), but 
as yet the holding company was not an important 
factor in the industrial field. 

But with the inauguration of the era of the 
so-called "industrials" came notable combinations 
in the iron and steel trades. J. P. Morgan and 
Company and their allies, having acquired an as- 
sured position in the railroad world, now made 
their entry into the field of the industrials as or- 
ganizers of Federal Steel (September, 1898).^^ 

4oThe Standard Oil organization existed without taking advan- 
tage of the New Jersey law until 1899, a community of interests 
being maintained through the manner of distribution of the stocks 
of the various companies composing the "trust." 

4iThe stocks of the companies it was proposed to combine 
having been secured (or, at any rate, a sufficient proportion of 
them) were then turned over to the new corporation together with 



GROUP FORTUNES. 125 

It was said that the profits of the firm derived 
from its services in organizing were about $200,- 
000,^^ but, apart from that consideration, the 
Morgan representation on the directorate of Fed- 
eral Steel would indicate that a very substantial 
interest in the company had been acquired, al- 
though Standard Oil men were no doubt the 
dominant factor.^^ 

The year following the formation of the Fed- 
eral Steel Company, Morgan succeeded in unit- 
ing the leading tube works of the country into a 
single organization, the National Tube Com- 
pany,^^ and in April, 1900, he assumed charge of 



$14,075,000 in cash (such part as was not furnished by stock 
assessments being guaranteed by Morgan). In return, $53,000,000 
preferred and $46,000,000 common stock of the Federal Steel 
Company was received by the organizers to be used in paying for 
the underlying properties. 

42Report of the Industrial Commission, Vol, I, pp. 986 ft", 
(testimony of Judge Gary). 

*3ln substantiation of this statement it may be mentioned 
that Standard Oil men had been connected with the Minnesota 
Iron Company (an important underlying property of Federal 
Steel) since 1887. Moreover, H. H. Rogers was a member of the 
executive committee of Federal Steel, and Roswell P. Flower, who 
had come to be closely identified with Standard Oil financiers 
through his copper interests, was a large holder of the company's 
stock. After his death, in May, 1899, it is probable that the 
Standard's hold on the property was materially strengthened. Cf. 
Bradstreet's, May 20, 1899, Vol. XXVII, p. 306; September 30, 
1899, Vol. XXVII, p. 613. 

44Standard Oil men were certainly associated with this enter- 
prise, if the presence of Daniel O'Day, connected with the Stand- 
ard Oil pipe-line system, and Jacob Vandergrift, one-time presi- 
dent of the United Pipe Lines Co., on the directorate of 11. 
company can be considered in the least significant. 



126 GREAT FORTUNES. 

the underwriting for another large steel "trust," 
the American Bridge Company.*^ During 
this same prolific period W. H. and J. H. Moore 
sprang into prominence as organizers of the 
American Tin Plate, National Steel (February, 
1899), American Steel Hoop (April, 1899), and 
American Sheet Steel (March, 1900) compa- 
nies^^ — all four of which came to be controlled 
by the small coterie of men for whom the Moores 
had been acting.^^ The only other important 
steel combination prior to the formation of the 



45Both in the case of the National Tube Company and in that 
of the American Bridi^e Co., Morgan was giv^en power to direct 
their policy absolutely for a stated number of months; nine months 
in the case of the former, and eighteen months in the case of the 
latter. 

48Judge Moore explained the manner in which these organiza- 
tions were effected, as follows: "I will not charge you anything," 
he reports himself as having said to the owners of the companies 
it was proposed to unite. "I will buy your properties and formu- 
late a plan, and if you do not want to go into the new plan, you 
can take cash." (Cf. testimony of W. H. Moore, Report of the 
Industrial Commission, \'ol. I, p. 963. ) 

4^The nucleus of the Moore group consisted of certain iron 
and steel manufacturers interested at one time in tlie various 
companies that went to make up the four new combinations. The 
group later extended its investments, branching out into the 
domain of railroads. It bought control of the Chicago, Rock 
Island and Pacific (1901), reorganized it as the Rock Island 
Company, and took over other ])roperties, purchasing the St. Louis 
and San Francisco (May, 190;},), and entering into an alliance 
with the Seaboard vVir Ijne the next October. The financiers 
composing the group are, however, relatively weak, and the 
chances are that they are scarcely in a position to be considered 
an independent power at the present time. In nil probability 
their railroad m-uiagement has come under the tutelage of 
Standard Oil. 



GROUP FORTUNES. 127 

United States Steel Corporation was the Amer- 
ican Steel and Wire Company (1899), at whose 
head stood John W. Gates. 

As the panic of 1893 made for a growth both 
in the diversity and in the size of the fortunes of 
particular financiers, so the industrial depression, 
which set in toward the close of 1899 and con- 
tinued through 1900, was occasion of profit to 
certain wealthy groups of investors who coerced 
certain other groups into alliance with them. At 
that time, conditions within the iron and steel 
trades were peculiarly severe, and with so many 
important groups of investors represented there- 
in, a competitive struggle on a more comprehen- 
sive scale than ever before experienced might 
be fairly deduced. As a matter of fact, the for- 
mation of the United States Steel Company in 
1901 seems to have been the outgrowth of some 
such struggle. 

The evidence points strongly in the direction of 
a shrewdly planned attack by the joint Carnegie- 
Rockefeller forces against the other groups in- 
terested. In order to understand the situation, 
it is necessary to enter somewhat minutely into 
the relations formerly existing between the Car- 
negie and the Rockefeller interests in the Minne- 
sota iron regions. The Oliver Iron Mining Com- 
pany, a Carnegie property, which was one of the 



128 GREAT FORTUNES. 

largest shippers of ore on the Mesaba range, had 
in 1896, made a fifty-year contract with the Lake 
Superior Consolidated Iron Mines Company, 
whereby, upon payment of a certain royalty, it 
obtained possession of two rich mines on the Me- 
saba, guaranteeing in return a minimum annual 
output of 600,000 tons of ore, to be shipped over 
the Rockefeller road, the Duluth, Missabe, and 
Northern, and carried in vessels belonging to the 
Rockefeller fleet.'*^ These shipments, together 
with the output from the Oliver mines, ensured 
an annual tonnage of from 1,200,000 to 1,500,000 
tons.^® 

Although the Lake Superior Consolidated 
Iron Mines Company continued to increase the 
carrying capacity of its lake fleets for some years 
subsequent to this contract, it was by no means 
secure in its hold upon the transportation of the 
Carnegie ore. By 1899 the Oliver Iron Mining 
Company had by the acquirement of new hold- 
ings attained to an average annual output of 
perhaps 4,000,000 or 4,500,000 tons of ore,^^ and, 
obviously it would be advantageous to carry such 
part of its own output as had not been disposed 

48/ron Age, December 31, 1896, Vol. LVIII, pp. 1309, 1310; 
.Tames H. Bridsce, The Inside History of the Carnegie Steel Com- 
pany, Chap XVII, p. 259. 

49iro« Trade Review, March 11, 1897, Vol. XXX. 

5o/6id., AprU 27, 1899, Vol. XXXII. 



GROUP FORTUNES. 129 

of by contract. Accordingly, the properties of 
the Lake Superior Iron Company were bought, 
and with them its fleet of six vessels, wliich were 
turned over to the newly formed Pittsburg 
Steamship Company (1899)^' — by 1900 the 
third largest fleet on the lake.^- 

It now began to be rumored that not so long- 
before this time, Mr. Rockefeller had offered to 
sell his large ore properties as well as his steam - 
sliip and railway holdings to Mr. Carnegie for 
$50,000,000, and that it was the refusal of this 
offer which led to the adoption of coercive meas- 
ures, taking shape in an attempt to corner the 
lake shipping in 1900.^^ However that may be, 
the Bessemer Steamship Company (the fleet of 
The Lake Superior Consolidated Iron Mines 
Company) purchased in the fall of 1899 the 
thirty vessels of the American Steel Barge Com- 
pany, and these, together with the twenty-four 
or more already owned, gave it a dominant posi- 
tion in the lake ore sliipping. The ore of the 
Oliver Iron Mining Company shipped under the 
contract of 1896 was taken at a rate which was 
an average of the wild and contract rates of each 
season. In an endeavor to keep up the wild 

si/j-on Trade Review, November 16, 1899, Vol. XXXII. 

5 2/roTO Age, May 10, 1900, p. 5, Vol. LXV. 

6 3jron Age, October 19, 1899, p. 300, Vol. LXIV. 



130 GREAT FORTUNES. 

rates so as to force this ore to pay a lake tonnage 
of $1.25, all but twenty of the vessels owned by 
the Bessemer Steamship Company were laid 
up.^^ As a result of this action the Carnegie 
Company made pubhc its intention of building 
its own railroad from the Minnesota mines to the 
lake. Furthermore, it was announced (July, 
1900) that the Carnegie Companj^ proposed the 
erection of "what would probably be the larg- 
est rod-mill ever built."'^^ The bearing of this 
proposal upon the situation becomes apparent if 
it be remembered that the plan to build a rod- 
mill would, if carried out, put a serious compet- 
itor in the field against the Federal Steel Com- 
pany — a property in which Standard Oil 
interests were prominent. As matters stood, both 
sides bade fair to prove losers in the pending 
struggle, and there was little reason for surprise 
when it was announced in August that harmony 
had been once more decreed and new and satisfac- 
tory traffic agreements entered into.^'' The ami- 
cable working arrangements thus effected be- 
tween the two interests continued from this time 
on until both were absorbed into the United 



547roTC Age, June 14, 1900, p. 36 f.. Vol. LXV. 
^^Commercial and Financial Chronicle, July 28, 1900, Vol. 
LXXI, p. 184. 

f-a/roM. Affe, August 9, 1900, p. 4, Vol. LXVI. 



GROUP FORTUNES. 131 

States Steel Company. Whether the formation 
of the latter was hastened because of this union 
is a question open for debate. But certainly, 
apart from any active personal support which 
Mr. Carnegie may have received in his efforts to 
dispose of his holdings,^'^ the increased control 
over the ore situation obtained by his alliance 
with the Rockefeller interests added to the strate- 
gic value of his position. 

The campaign of aggression, initiated in 1900 
with an attack upon the Federal Steel and the 
American Steel Hoop companies,^^ was contin- 
ued without abatement from tliis time forth. 
The situation was peculiarly favorable, indeed, 
to the success of Mr. Carnegie's plans. In the 
earlier part of the year the iron and steel trades 
had suffered a relapse from a condition of over- 
stimulated prosperity, and it needed only the clos- 
ing of the mills of the American Steel and Wire 
Company "on account of an excessive accumula- 
tion of supplies" ^^ to start a decline in the prices 
of steel stocks. By the end of June, 1900, quo- 



57He was admittedly anxious to "sell out." 

58The American Steel Hoop Co. was hit by the suggestion 
that the Carnegie Co. "might go into the manufacture of hoops 
and bands." Cf. Commercial and Financial Chronicle, July 28, 
1900, Vol. LXXI, p. 1840. 

5sCommercial and Financial Chronicle, April 28, 1900, Vol. 
LXX, p. 843. 



132 GREAT FORTUNES. 

tations had been cut down more than half in the 
case of the common stocks, and preferred hold- 
ings had lost from 13 to 20 points. In Novem- 
ber, when speculative securities were just begin- 
ning to be salable once more,^*' the Carnegie Com- 
pany made further announcement of its intention 
to manufacture sheet steel, steel wire and nails, 
and steel pipes — an intention which, if carried 
out, was likely to produce a general demoraliza- 
tion in steel stocks. The Morgan interests were 
endangered as well as the Moore and Gates prop- 
erties, and consternation was widespread. When, 
therefore, the Carnegie Company, early in Jan- 
uary, 1901, announced the immediate construc- 
tion of large tube-works at Conneaut,*'' Mr. Mor- 
gan, as the representative of the National Tube 
Company, as well as of other organizations that 
had been threatened, was compelled to enter into 
negotiations looking toward the purchase of the 
Carnegie holdings.^-' By the end of February, 
a consolidation of the leading steel companies of 
the country was announced, with J. P. Morgan 
and Company as organizers. It is no surprise to 
learn that the property of the Carnegie Company 
was taken over at an exceedingly liberal valua- 



eoMeade, Trust Finance, Chap. XI, pp. 213 ff. 
6i/ro7i Trade Review, January 10, 1901, Vol. XXXIV. 
62/roH Age, February 7, 1901, p. 33, Vol. LXVII. 



GROUP FORTUNES. 133 

tion, Mr. Carnegie alone receiving approximate- 
ly $217,720,000 in 5 per cent, first-mortgage gold 
bonds for his individual holdings.*'^ As for the 
rest of the companies incorporated, the Lake Su- 
perior Consolidated Iron Mines obtained the 
most favorable terms,^^ although the majority 
secured bonuses both in preferred and in com- 
mon stock. 

Notwithstanding the resultant condition of 
inflation, it was thought that the Morgan syn- 
dicate had reaped an immense profit as the re- 
sult of its operations.*''^ But this belief was con- 
siderably shaken by the proposed bond-conver- 
sion scheme of the following year,*'® and subse- 
quent events served to strengthen a gradually 
growing conviction that Morgan had not acted 

6 3 J. H. Bridge, The Inside History of the Carnegie Steel 
Comfany, Chap. XXIII, pp. 363, 364; also Moody, The Truth 
About the Trusts, p. 154. 

^*Moody's Manual of Corporation Securities, 1904, p. 1616. 

65Some estimates put its gain as high as $56,500,000 {Iron 
Age, February 6, 1902; cf. also Commercial and Financial Chron- 
icle, May 2, 1903, Vol. LXXVI, p. 977). 

66The plan (ratified May, 1903,) contemplated the exchange at 
par of $2,000,000 of 7 per cent, cumulative preferred stock of 
the corporation for 5 per cent, second-mortgage gold bonds. As 
a result of litigation it did not go into eifect until March, 1903. 
From May 16 to November 19 the syndicate enjoyed the sole 
right of conversion. It is estimated that it exchanged $104,300,000 
of stock during a period in which, although bond quotations were 
falling, prices of preferred stock were falling relatively even 
lower. The conversion plan may have been merely a clever profit- 
making device or it may have been a desperate remedy adopted 
by men laden with securities of which they were unable to dis- 



134 GREAT FORTUNES. 

altogether as a voluntary agent. Perhaps he had 
been "held up," so to speak, and forced to take 
over properties at a valuation that later made it 
difficult to dispose of the securities of the new 
companj^ to advantage. Opinions upon this 
point may vary, however, but that the organiza- 
tion of the United States Steel Company was 
undertaken primarily for the purpose of secur- 
ing harmony among the several groups interested 
in the underlying companies is a conclusion fairly 
deducible from a consideration of the incidents 
leading up to the consolidation. 

It is not possible even to indicate all the other 
lines of corporate investment which these same 
financiers were entering during the period from 
1897 and 1898 onward. Some of the new hold- 
ings which were being acquired by the Standard 
Oil group may be mentioned briefly, however. 
As early as 1898 their interest in the Western 
Union Telegraph Company began to develop,*'" 



pose. At any rate, opposition to it led to a dissolution of the 
syndicate earlier than had been expected (November, 1903,). 
For an account of bond conversion and litigation, cf. Meade, 
The United States Steel Corporation Bond Conversion, Quar- 
terly Journal of Economics, Vol. XVIII, p. 22; also Commercial 
and Financial Chronicle, November 21, 1903; Moody's Marmal 
of Corporation Securities^ 1904, pp. 1613, 1634; Ripley, The 
Later History of the Steel Corporation Bond Conversion, Quar- 
terly Journal of Economics, Vol. XIX, p. 316. 

GTRoswell G. Rolston, president of the Farmers' Loan and 
Trust Company, alBliated with Standard Oil, and likewise a "Na- 



GROUP FORTUNES, 185 

thus bringing them into contact with another im- 
portant group of financiers, the Goulds. In 1898 
Standard Oil men launched the Amalgamated 
Copper Company, in wliich Morgan interests 
were Kkewise represented.*^^ The death of Ros- 
Avell P. Flower (May, 1899), who was promi- 
nently identified with the copper trust, brought 
other property into the hands of Standard Oil 
men, since they bought largely of his stock hold- 
ings, notably securities of the Brooklyn Rapid 
Transit Company, of wliich it is said they subse- 
quently gained control.*^^ The American Smelt- 
ing and Refining Company (1899) was organ- 
ized mider Standard Oil influence,'*' and some 
years later (1903) entrance was secured into the 
Colorado Fuel and Iron Company, with which 
latter venture the Gould group was again asso- 
ciated.^^ In the same year there was rumor of an 
alliance between the Standard Oil and the Wid- 



tional City" man, became a director of the Western Union Tele- 
graph Co. in 189T; James Stillman entered the board in 1898 or 
1899; while Henrj'- M, Flagler and Charles Lockhart, both "orig- 
inal" Standard Oil men, and E. H. Harriman went in in 1900. 

esFrederick P. Olcott and Robert E. Bacon were among the 
directors. 

e^Bradstreet's Mav 20, 1899, Vol. XXVII, p. 306; September 
30, 1899, Vol. XXVII, p. 613. 

''oCommercial and Financial Chromcle, April 15, 1899, Vol. 
LXVIII, p. 668. 

'iConcerning the Colorado Fuel and Iron Co., cf. Bradstreet's, 
November and December, 190.9, June and December, 190.3. 



136 GREAT FORTUNES. 

ener-Ryan parties with a view to the purchase of 
the MetropoHtan Securities Company. All idea 
of such purchase was vigorously denied at the 
time, but as Ryan subsequently took possession 
of the property, the denial lost somewhat of its 
force.^^ 

While Standard Oil was thus engaged in ac- 
quiring holdings in the corporations mentioned, 
as well as in others that might be named, the 
group was at the same time extending its great 
railway system by purchase and by alliance. In 

1899 a syndicate composed of Gould, Schiff, 
Harriman, and Stillman, had purchased a con- 
trolling interest in the Chicago and Alton.^^ In 

1900 Harriman, Stillman, and Gould combined 
to buy out the Kansas City Southern^^ — a road 
which had been a disturbing factor in the west- 
ern rate situation. 



''^Commercial and Financial Chronicle, September 5, 1903, Vol. 
LXXVII, p. 511. 

73john D. Rockefeller's name was first mentioned in place of 
Stillman's as a member of the syndicate (cf. Commercial and 
Financial Chronicle, February 11, 1899, and BradstrecVs, Feb- 
ruary 'SS, 1899,). An investigation of the Interstate Commerce 
Commission (New York City, January 6, 1907,) brought out the 
fact that the Chicago and Alton was under the joint control of 
the Chicago, Rock Island, and Pacific Railway and the Union 
Pacifi-c, one road having charge of it one year; the other, the next. 
The arrangement grew out of a contract between Harriman and 
Leeds, entered into in 1904. 

"'iBradstreet's, November 3, 1900, Vol. XXVIII, p. 692. 



GROUP FORTUNES. 137 

The facts just mentioned are important in that 
they bear witness to a growing community of in- 
terests between the Standard Oil and the Gould 
adherents. But the events of the next few months 
were to be of even greater significance. In 1901 
the Harriman-Kuhn-Loeb syndicate, on behalf 
of the Union Pacific, which was dominated by 
Standard Oil, acquired control of the Hunting- 
ton-Speyer interests in the Southern Pacific for 
$40,000,000 or $50,000,000^°— a purchase wliich 
added greatly to the power of the group in the 
western railroad world. The same year was 
marked by the entrance of Standard Oil into the 
Northern Pacific under the leadership of Harri- 
man.^^ The raid which resulted in their gaining 
control of the stock^^ and securing, as they 
thought, a "say-so" as to the disposal of the Chi- 



"'^Bradstreet's, February 9, 1901, Vol. XXIX, p. 84. 

76lt is probable that Standard Oil men had an interest in the 
Northern Pacific prior to this time. They were creditors of the 
road when it went into bankruptcy in 1893; F. T. Gates, a repre- 
sentative of John D. Rockefeller, and James Stillman were mem- 
bers of a committee to arrange for a collateral trust agreement to 
extinguish the floating debt. (Cf. Commercial and Financial 
Chronicle, May 20, 1893.) Subsequent to the reorganization, John 
D. Rockefeller and James Stillman were mentioned as members 
of the new board (ibid., Oct. 17, 1896). Rockefeller's name did 
not appear thereafter, however, but Stillman continued as direc- 
tor, and in 1897 Oliver H. Payne also became a member of the 
board. 

'i'^Oommercial and Financial Chronicle, May 11, 1901, Vol. 
LXXII, p. 936; October 12, 1901, Vol. LXXIII, p. 783; October 
19, 1901, Vol. LXXIII, p. 843. 



138 GREAT FORTUNES. 

cago, Burlington and Quincy, the joint purchase 
of the Great Northern and the Northern Pacific, 
was a short-Hved victory. Morgan and his alHes 
still held a majority of the common stock, wliich 
carried with it a provision to retire the preferred 
holdings at any time at par. This they threat- 
ened to do, and the result was a compromise — 
the formation of the Northern Securities Com- 
pany, November, 1901, in which all three inter- 
ests involved — Standard Oil, Morgan, and Hill 
— were represented. 

It was in 1901, too, that George Gould ac- 
quired control of the Denver and Rio Grande 
and the Rio Grande and Western."^*^ The next 
year he purchased the West Virginia Central 
and the Western Maryland,^'' while shortly there- 
after it was noised abroad that Standard Oil had 
acquired large holdings in a Gould road, the 
Missouri Pacific,^^ and that the two interests 
were working in harmony. ^^ 



'^Raihmy Age, May 17, 1901, Vol. XXXI, p. 531. 

■'^Bradstreet's, July 13, 1903, Vol. XXX, p. 436. 

^^Ibid., September 13, 1903, p. 578. The appearance on the 
directorate of the Missouri Pacific of E. P. Prentice, John D. 
Rockefeller's son-in-law, F. T. Gates, and John D. Rockefeller, 
Jr., would tend to verify reports as to stock purchases. Cf. 
Poor's Manual of Railroads. 

siBradstreet's, September 13, 1903, Vol. XXX, p. 578. A 
statement was likewise made with reference to another road as 
follows: "St. Paul, as is well known, is dominated by Standard 
Oil." 



GROUP FORTUNES. 139 

As early as 1900 it had been rumored that 
Standard Oil men had entered the territory of 
the New York Central, the Vanderbilt strong- 
hold. During 1904 their interests were marked- 
ly increased, while the relations between the 
Union Pacific and the New York Central came 
to be regarded as especially close. Furthermore, 
Standard Oil and Vanderbilt representatives 
were operating in joint control of the Delaware, 
Lackawanna, and Western,^^ and it may fairly 
be said that all the available evidence would in- 
dicate that there was a very substantial identity 
of interests between the groups in question. 

In Februarj^ 1905, the Union Pacific secured 
a representation in the Atchison, Topeka and 
Santa Fe^^ — practically annexed it, in fact, and 
thus added materially to the mileage of the so- 
called Harriman system of railroads. There is 
no doubt that Standard Oil was back of a notable 
and very recent victory won by Mr. Harriman, 
who led the fight against the president of the 
Illinois Central, whom he succeeded in deposing, 
thereby demonstrating the power which he and 

s2Cf. Commercial and Financial Chronicle, February 24, 1894, 
Vol. LVIII, p. 345; cf. also Moody's Manual of Corporation 
Securities, 1904, for list of directors. 

?3ln the persons of H. H. Rogers and H. C. Frick. It has 
been recently divulged that the Oregon Short Line bought $10,- 
000,000 of the preferred stock of the Santa Fe, subsequent to 
July 1, 1906. 



140 GREAT FORTUNES. 

his backers could exert in controlling the policy 
of the road.^^ 

The conclusion that must be reached in any 
case after even a superficial review of the facts, 
is that the financial interests in control of the 
great railroad systems of the country have be- 
come connected in one way or another in almost 
inextricable fashion. Furthermore, it looks as 
if the Harriman (Standard Oil) and the Morgan 
groups are coming to hold first place among 
these various interests, and indications are not 
lacking to support the belief that the Standard 
Oil group may one day come to occupy the posi- 
tion of chief control. At any rate, its aggressive 
policy has thus far been exceedingly successful, 
and the wealth and power of its chief members 
have grown with surprising rapidity. To men- 
tion the most notable of their achievements, they 
have, within the space of a few years, acquired 
control of the Huntington properties, allied 
themselves to some extent with the Goulds,^"^ se- 
cured a portion of the Vanderbilt holdings, en- 

8iln a hearing before the Interstate Commerce Commission 
(New York, January, 1907,) it was learned that the Oregon Short 
Line, part of the Harriman system, owned securities of the Illi- 
nois Central to the amount of $28,123,100, which had been 
acquired since July 1, 1906. The same road held $39,540,600 of 
the stock of the Baltimore and Ohio, also acquired since Julv, 
1906. 



GROUP FORTUNES. 141 

croached upon the Morgan-Hill territory, and 
made their way into other roads less closely iden- 
tified with particular groups. 

Moreover, it may be well to state that, as the 
Standard Oil group extended its investment ac- 
tivities and came into closer contact with other 
groups, the National City Bank began to con- 
tract new alliances, to admit representatives of 
outside interests to its directorate, and to pur- 
chase control of other banks, until today it stands 
at the head of one of the most powerful financial 
organizations in the country. Nor has the growth 
of tliis aggregation ceased, for each year the Na- 
tional City banks are becoming more closely allied 
with that other important chain of institutions, 
the so-called Morgan banks. The practically 
endless series of interrelations that have thus been 
brought about points strongly in the direction of 
a complete unification of control of these finan- 
cial institutions, to be concentrated in the hands 
of that group of financiers, who shall eventually 
come to dominate the general investment field. 
As approach is made toward this final stage of 
development, it becomes more and more difficult 



ssSince George J. Gould decided to build the Western Pacific, 
his relations \vith Harriman are apparently not so close as for- 
merly. Cf. hearing, January, 1907, Interstate Commerce Com- 
mission, New York City. 



142 GREAT FORTUNES. 

adequately to estimate the fortune of any single 
member of a group. The amount of his holdings 
is conditioned by the power of the group, and 
that power expresses itself through group action, 
the acquisitive potentialities of such action be- 
ing impossible of measurement. 



CHAPTER V. 

PERSONAL AND NON-PERSONAL 

FACTORS INVOLVED IN 

GAIN GETTING. 

Tj^VEN superficial studies of the business 
career of John Jacob Astor emphasize its 
supposedly dualistic nature and distinguish be- 
tween the apparently sharply defined aspects of 
gain getting for which it stands. In fact, Astor's 
trading operations are frequently discussed as if 
they had not the shghtest theoretical connection 
with his activities as an investor in land. It is 
the latter method of fortune getting wliich is gen- 
erally considered to afford exclusive opportunity 
for the appearance of an "unearned increment," 
that is, gain of some sort which cannot be attrib- 
uted to the personal effort or personal ability of 
the beneficiary. Under the influence of this mis- 
conception, an attempt is made to distinguish be- 
tween the profits arising from trade, and the 
gains growing out of land investments, on the 
ground that, in the one case, the size of the re- 
turns is conditioned by the degree of personal ac- 
tivity, whereas, in the other case, no appreciable 
amount of individual effort or abihty is involved. 
Daniel Webster, for instance, in an address to 
the jury, when arguing against Astor's claim 



144 GREAT FORTUNES. 

to lands in Putnam county, implied some such 
distinction between commercial exertions and 
land investments, in connection with the moral 
judgment that he passed upon Astor. True, his 
argument was impassioned and polemical in tone. 
Moreover, he was referring to a particular case 
of land investment, characterized by certain pe- 
culiar features. But the antithesis that he sug- 
gests is nevertheless significant — the more so that 
it was designed to appeal to popular prejudices. 
Hfs plea was that Astor had obtained possession 
of the land in dispute, "not as he did that vast 
wealth than which no one envies him less than I 
do — not by fair and honest exertions in commer- 
cial enterprise, but by speculation, by purchasing 
up the forlorn hope of the heirs of a family driv- 
en from the country by a bill of attainder."^ 
Whether designedly or not, Webster has here 
made a distinction between "commercial exer- 
tions" and "speculation" in land, implying, in the 
one case, that the source of returns is personal 
activity, in the other, that the gains are to be at- 
tributed in the main to a non-personal factor — 
that is, to some cause operative to produce gain, 
irrespective of individual effort or of individual 
ability. 

iJackson vs. Carver, U. S. Circuit Court, Southern District of 
New York. 



FACTORS IN GAIN GETTING. 145 

It is on the basis of this broad division into per- 
sonal and non-personal factors conditioning gain, 
that an analysis will be made, not only of the re- 
turns that came to Astor from trade and from 
land investments, but likewise of the incomes 
from various sources enjoyed by Gould, and by 
members of the "Standard Oil" and "Morgan" 
groups of investors. Further, it will be shown 
that, given such a principle of differentiation, no 
rigid line of demarcation can be drawn between 
these various methods of gain getting. This prop- 
osition once estabUshed, the classification will re- 
ceive a more extensive application, with intent to 
determine the nature of the gains that arise in the 
course of the general process of fortune accumu- 
lation. Finally, the significance of the analysis 
for purposes of present-day criticism will be dis- 
cussed.^ 

The Astor fortune alone furnishes strong evi- 
dence to support the assertion that no one method 
of gain getting represents the exclusive operation 
either of personal or of non-personal factors. 
Even in the case of Astor's most active trading 

2The method of treatment proposed leaves strictly on one side 
all question concerning the social services rendered by owners of 
large fortunes, since that is a problem properly and logically 
separate from the present task. In fact, it is a subject the 
nature of whose treatment depends largely upon the sort of 
theoretical analysis which has preceded it. It will, therefore, be 
reserved for later discussion in this paper. 



146 GREAT FORTUNES. 

ventures, did there not arise an "unearned"^ in- 
crement, plainly attributable to certain non-per- 
sonal factors ? The profits arising from his traffic 
with the Indians were due in large part to the su- 
perlative ignorance of that non-commercial peo- 
ple. Or, if this statement be objected to, as 
reflecting somewhat invidiously upon Astor, it 
must at any rate be conceded that such profits 
were the result of radically different standards of 
value. The schedules of exchange relating to the 
trade make ludicrous the assumption of a "freely 
competitive" state in which reward is considered 
to be in proportion to individual effort or ability. 
It is true that in the prosecution of the Indian 
trade a liigh degree of personal skill and of 
mental dexterity was requisite. This fact helped 
unduly to emphasize the importance of the indi- 
vidual. His pecuniary success was popularly 
supposed to have its source in personal activitj^ 
alone. Consequently, the attendant non-personal 
factors were relegated to a position of obscurity, 
although, as has been shown, a closer examination 
reveals their overwhelming importance.^ 

■iThe term "unearned" is retained simply to show the variety 
of phenomena to which it may be applied if its use be logically 
extended. It is taken to connote absence of personal activity. 

mother illustrations might be drawn from the China trade. 
The peculiar tastes of the Chinese were a source of exceptional 
gain to the Yankee shipper, especially when the latter could 
obtain the commodities desired by the former at relatively low 
prices, as in the case of furs. 



FACTORS IN GAIN GETTING. 147 

On the other hand, land investments frequent- 
ly afford striking examples of value accretion, 
associated with only a minimum of personal ac- 
tivity. Hence they are thought of almost exclu- 
sively when the subject of the "unearned incre- 
ment" is discussed. Yet, even in such cases there 
must have been some sort of initial activity put 
forth by the owner of the land. For example, 
Astor needed to exercise unusual discrimination 
in order to decide in what direction the city of 
New York was likely to grow, and to estimate the 
possibilities of that development. Granted that, 
it will be asked, could any appreciable proportion 
of the $18,000,000 worth of real estate owned by 
him at the time of his death, be held to represent 
a return due to his personal efficiency ? Given the 
existing system of business relations, the whole 
amount of the property was legally and legiti- 
mately due him. But can it, in logic, be said that 
an explanation should assign a fixed percentage 
of the accumulation to the category of returns 
due to efficiency? The fact that Astor was 
possessed of greater business astuteness than 
the average man helped to explain why he, rather 
than someone else, came into possession of this 
landed property. Superior personal abihty 
is in general exceedingly potent in aiding the 
individual to acquire property as against other 



148 GREAT FORTUNES. 

individuals. But personal ability does not for 
that reason adequately explain the "how much" 
of those acquisitions/' A determination of ques- 
tions of ownership is not a determination of ques- 
tions concerning the amount of gain arising as 
the result of ownership. 

Too often, the importance of the existing sys- 
tem of social institutions and legal relations, as 
conditioning the process of gain getting, is un- 
derrated. Distributive questions are apt to be 
discussed in a manner to indicate that the distrib- 
utive process takes place in some sublimated 
sphere that knows no law but a "natural" law. 
The emphasis is thrown on questions of skill, of 
productive efficiency. The formally efficient con- 
ditioning factors are not felt to disturb to any 
great extent these more "vital" causes making 
for gain. But it cannot be repeated too often 
that the institution of private property presup- 
poses a whole system of formal legal arrange- 
ments, within which the individual must operate 
in the process of gain getting. The exceptional- 
ly or even ordinarily clever man may succeed as 
against his fellows in acquiring title to a certain 
amount of property. Very possibly (although 



BGiven a start, the influence of acquired wealth upon further 
accumulation has also a bearing upon the present discussion. 
This point will be taken up later. 



FACTORS IN GAIN GETTING. 149 

not invariably) he is enabled to do this as a result 
of industry and a disposition to save, combined 
with a certain keenness of judgment in making 
investments. But does it follow that the amount 
of property owned by such a man measures the 
degree of ability possessed by him, as compared 
with some other man? By no means. Property 
is an acquisitive category; it is a case of mine 
against thine, and, conceivably, ever so slight a 
difference in personal equipment may give one 
man ownership of a piece of property as against 
a rival. 

But, admitting an exceptional degree of per- 
sonal ability, suppose that an individual gets pos- 
session of a property sure to bring in large re- 
turns in the future without further effort on his 
part. Are those future returns all to be accred- 
ited to the more or less of superior ability that en- 
abled him to acquire possession of the property'' 
in the first place? To take the most obvious illus- 
tration, assume that he has purchased an acre of 
land for $100; twenty years later the city has 
surrounded this lot, and he sells it for $100,000. 
In this case, it has been taken for granted that 
the owner had the foresight to predicate some 
such result (although it may very well have been 
an accident), and that this foresight was the effi- 
cient cause of the original purchase. Even so, 



150 GREAT FORTUNES. 

do the gains derivable from such a purchase in 
any way measure the personal ability of the own- 
er? He might, perhaps, have sold his land for 
$50,000 or for $200,000, and it would not have 
been possible to say that he had displayed great- 
er or less acumen in making his original pur- 
chase. Social changes, partly predicable, but for 
the most part incalculable, have brought about 
the increased gain. The factor of personal abil- 
ity has, in such cases, merely determined who is 
to be the recipient of those gains under the exist- 
ing laws of property. 

Hence, it is easy to see why, in the case of a 
landed fortune such as that of John Jacob Astor, 
the overweening part played by social factors in 
increasing the value of Astor's land holdings, 
frequently caused the element of personal ability 
conditioning the returns derived from such in- 
vestments to be Avholly ignored. To the uncrit- 
ical mind, such a form of gain ai)peared 
to be entirely the result of social conditions 
and legal arrangements. It therefore acquired 
the highly derogatory appellation "unearned," 
because of the persistence of the idea that reward 
"generally" is, and hence always should be, in 
proportion to personal effort or personal ability. 

Jay Gould, as well as John Jacob Astor, won a 
large part of his fortune as the result of purely 



FACTORS IN GAIN GETTING. 151 

speculative operations. Indeed, no great fortune 
either before or since his day seems to have been 
more consistently derived from what, in the larger 
sense of the term, was gambhng — a game, too, 
in which Gould, generally speaking, held the bag. 
Hence, it is easy to show that the resultant gains 
were in many instances almost wholly the result 
of the peculiar circumstances conditioning his 
activity, and were in that sense and to that extent 
"unearned." 

No one questions that Gould had a peculiarly 
sinister type of abihty, that he was an excessively 
shrewd as well as a calmly resolute man. 
His cleverness enabled him to manipulate situa- 
tions, so as to derive from them the utmost indi- 
vidual profit. But, even when these returns were 
legally acquired, did they afford even an approxi- 
mate measure of his personal abihty, of the ac- 
curacy of his judgment? By no manner of 
means. He was generally in a position where he 
took no chances; he stood to win in the very na- 
ture of things. His stock speculations in the 
Erie, for instance, were certainly not due to any 
foresight on his part, as to whether the stock was 
likely to rise or to fall. It generally rose or fell 
as he dictated; and he was enabled to dictate 
its price fluctuations, and to profit thereby, 
because of the imlimited power he exercised over 



152 GREAT FORTUNES. 

the policy of the Erie, by reason of the fiduciary 
position he occupied. 

Further, the conditions prevailing throughout 
the country during the period immediately suc- 
ceeding the Civil War were emineiitly favorable 
to advancing the fortunes of any cool-headed 
speculator in stocks, even when he did not have 
the treasury of a great railroad at his disposal. 
A demoralized, speculative fever had taken pos- 
session of the country; the large issues of paper 
money, giving rise to the premium on gold, the 
excessive expenditures of the government made 
necessary by the war — all had contributed to ag- 
gravate the situation. There were lambs to fleece 
in plenty, who were just as ignorant of the pos- 
sibilities of the speculative market as were the 
Indians of the fur-trader's wiles. The advantage 
enjoyed by a speculator who had "inside informa- 
tion," because he occupied a (so-called) position 
of trust within the councils of a corporation, 
made a contest with him as unequal as any trade 
between Indian and white man. 

But it was not only as a speculator that Gould 
enjoyed gains largely conditioned by non-per- 
sonal factors. As an investor in great public ser- 
vice corporations — notably the Manhattan Ele- 
vated Railway Company and the Western Union 
Telegraph Company — he profited in proportion 



FACTORS IN GAIN GETTING. 153 

as these companies profited by the growth in 
wealth and power of the communities which they 
served. 

To take another illustration, it would be im- 
possible to deny the great ability as worker and 
organizer displayed by John D. Rockefeller, 
while actively connected with the refining busi- 
ness. Is it, therefore, possible to say that the 
many millions which he derived from his connec- 
tion with the Standard Oil Company furnish a 
measure of that ability? Granting that a certain 
sort of ability is the sine qua non of pecuniary 
success, that ability is not alone adequate to ex- 
plain the degree of success. There are all sorts 
of non-personal factors to be considered, as, for 
instance, in the case of the Standard Oil Com- 
pany, the gains resulting from the favors extend- 
ed by the railroads during an era of fierce com- 
petitive strife. The attitude of the railroads aid- 
ed greatly in building up the monopoly power 
of the company with all its attendant advantages. 
Further, with the increase in size of this great 
industrial concern, it came to approximate more 
closely to the position of a public service corpora- 
tion, such as a railway or a telegraph company, 
and to profit more largely, therefore, from the 
growth in wealth and power of the country at 
large. 



154 GREAT FORTUNES. 

The testimony wliich has been offered is, no 
doubt, sufficiently varied to establish the fact of 
the joint operation under all conditions of both 
personal and non-personal factors. This propo- 
sition once established, it can therefore be stated 
as a corollary not requiring demonstration that, 
between those methods of gain getting in which 
the personal element looms large, and those in 
which it has become a negligible factor, there 
must exist all conceivable varieties of combina- 
tion of the two factors. Hence, there must every- 
where be found "unearned increments," differing 
widely in amount, with variations in the relative 
importance of the attendant non-personal fac- 
tors. 

The discussion, as thus far given, has not been 
directly concerned with the manner of growth of 
these great fortunes; the treatment has, in fact, 
been analytical rather than developmental. It 
is, however, a matter of much importance to de- 
termine whether the gains, wliich make possible 
further accumulations, are largely conditioned by 
personal ability, or whether non-personal con- 
siderations attain constantly increasing prom- 
inence in aiding the process of growth. Could it 
be shown that the general tendency is in the lat- 
ter direction, some light would be thrown upon 
the causes of the rancor manifested against men 



FACTORS IN GAIN GETTING. 155 

of great fortune — a rancor that, given the strong- 
ly individualistic commercial preconceptions of 
the community, is otherwise hardly capable of a 
logical explanation. But, before arriving at any 
decision upon this point, it will be necessary to 
discuss the nature of those factors which become 
increasingly operative with the increase in size 
of a fortune. 

In the case of very large fortunes, a continu- 
ance of growth sometimes seems so inevitable as 
almost to. partake of the nature of a mechanical 
process. Of course, there is necessarily implied 
some sort of action on the part of the owners of 
such fortunes. This may, however, take the neg- 
ative form of simply refraining from consuming 
the whole of the returns to which they are en- 
titled, and it may entail little or none of the so- 
called abstinence supposed always to attach to 
the investment process. In fact, the incomes of 
exceptionally wealthy men are frequently so 
large that there remains a surplus, even after 
fancied needs of expenditure have been satisfied. 
Moreover, many American millionaires, such as 
Astor, Gould, and Rockefeller, who began life 
in poverty, are men of relatively simple tastes, 
who have no desire to expend more than a small 
proportion of the incomes due them. Conse- 
quently there ensues a bewildering process of in- 
11 



156 GREAT FORTUNES. 

vestment and reinvestment,® which, assuming a 
continuance of ordinary conditions, gives rise to 
the phenomenon of unending growth/ 

In later years, the corporate system has added 
greatly to the ease with which investment inter- 
ests have been extended. By enabling an indi- 
vidual to exercise a power much in excess of that 
which he could wield if forced to make outright 
purchases in order to secure control of a com- 
pany, it has opened up to him many more ave- 
nues of gain. No operations so extensive as those 
of present-day groups of investors would have 
been possible under a non-corporate system in 
which "abstract" rights of property in the form 
of stocks and bonds were unknown.*^ Moreover, 

6The part played by the individual in determining the direc- 
tion to be taken by these investments is considered in another 
connection. 

Tin discussing any great fortune, it should be remembered 
that pride in its mere size is an energizing principle of consid- 
erable force in the direction of activities looking toward further 
accumulations. The fortune comes to be regarded as an institu- 
tional fact, which should not suffer change, because of births, 
deaths, marriages, or other extraneous happenings. In conse- 
quence, there exists a disposition to transmit it intact to that 
descendant who gives best evidence of ability to conserve and to 
augment it. The heads of the Astor, Vanderbilt, and Gould 
families, all owning numerous descendants, have seen fit to select 
one or two of each generation as the guardians of the family 
fortunes, which they in their turn will be expected to transmit 
practically intact and greatly augmented to succeeding genera- 
tions. 

8 For a discussion of the importance of "abstract property" in 
the making of large fortunes cf. G. P. Watkins, The Growth of 
Large Fortunes. Publication of the American Economic Associa- 
iion, November, 1907. 



FACTORS IN GAIN GETTING. 157 

for speculative operations such as those of Jay 
Gould and many of the later men belonging to 
the Standard Oil and Morgan groups, the ex- 
istence of "abstract property" is of primary im- 
portance. For Morgan, of course, as dealer in 
securities, and reorganizer of stock and bond- 
issuing companies, this "abstract property" is 
indispensable. 

But for the gains derived during the process 
of growth of a great fortune from a simple exten- 
sion of investment interests, the corporate sys- 
tem with its attendant feature of abstract, pa- 
per ( ?) property is not absolutely essential, how- 
ever greatly it may facilitate the ease with which 
investments can be extended. Undoubtedly, the 
existence of rights of ownership in the form of 
negotiable securities (becoming daily larger in 
volume, as the corporate system extends into new 
fields of industry) is of great and growing im- 
portance for the development of present-day for- 
tunes — especially in so far as those fortunes come 
to be derived more and more from immense pub- 
lic-service corporations. But "abstract prop- 
erty" cannot be invoked as the sole explanation 
of the gains coming to men of great wealth. It 
is, after all, but one of the conditions growing out 
of social-legal arrangements, which aid the pro- 
cess of accumulation. Indeed, it should be re- 



158 GREAT FORTUNES. 

membered that the fortune of John Jacob Astor 
was acquired long before the days of the Stock 
Exchange, although it is not to be denied that liis 
real estate holdings offer a close analogy to the 
stock and bond holdings of these latter days.^ 

It has been shown that the non-personal factor 
of mere size largely conditions the ease with 
which an indi\adual may extend liis investments 
and thus augment his fortune. It also enables 
him to take advantage of imiumerable oppor- 
tunities to invest under peculiarly favorable cir- 
cumstances, and thereby to make still further 
additions to the sum of his "unearned incre- 
ments." One of the facts that stand out most 
prominently to a person who is making a devel- 
opmental study of large fortunes is the increase 
in the amount and extent of investments, wliich 
takes place just at those times when the com- 
munity at large is suffering from acute financial 
depression. Thus, during the War of 1812 and 
the panic of 1837, Astor increased his holdings of 
real estate enormously, as the result of numerous 
mortgage foreclosures. Similarly, the panic of 
1893 gave Morgan unrivalled opportunities to 
obtain interests in numerous bankrupt roads, as 
the price of undertaking their reorganization. 

sQf. G. P. Watkins, The Oroioth of Large Fortunes, pp. 43, 88. 



FACTORS IN GAIN GETTING. 159 

Needless to say, the circumstances of the time 
enabled him to dictate the terms of settlement 
in a manner highly advantageous to himself. It 
is from tliis period of financial demoralization 
that Morgan and his adherents date their origin 
as a powerful group of investors. About the 
same time, "Standard Oil" men^*^ were enabled 
to secure many valuable properties at low prices, 
notably the rich mines in the Lake Superior iron 
ore regions obtained by Mr. Rockefeller. 

But apart from any widespread social disorder, 
there are numerous opportunities afforded a 
wealthy man to profit by individual cases of 
financial embarrassment or of superimposed ne- 
cessity. Witness the case of Astor, who pur- 
chased the posts of the Northwest Company, 
after a law had been passed which made it illegal 
for the British organization to carry on business 
in this country. His purchase of the rights of 
the heirs to the Morris estate is likewise an illus- 
tration in point. Gould, for his part, profited 
upon many occasions through buying control of 
bankrupt companies at absurdly low prices, and 
then forcing other corporations to purchase them 
by means of threats. For example, he terrorized 



loA group of investors can of course force sales even more 
effectively than the single rich man, and they can take even 
prompter advantage of ill times. 



160 GREAT FORTUNES. 

the Union Pacific management into taking over 
the Kansas Pacific and the Denver Pacific at in- 
flated valuations, and he so injured the business 
of the Western Union Telegraph Company that 
it was compelled to come to terms with the At- 
lantic and Pacific, and with the American Union 
telegraph companies, to the great gain of the two 
last-named concerns. The advantage which Car- 
negie (backed, probably, by Rockefeller,) took of 
the demoralization existing within the steel trade 
in 1899-1900, to force a purchase of his interests, 
adds another to the long list of possible illustra- 
tions. As a matter of fact, anyone can recall oc- 
casions upon which he has heard lesser business 
men lamenting their inability to take advantage 
of the exceptional opportunities for investment 
afforded by "hard times" or by ill luck. But, as 
it happens, they are opportunities enjoyed for the 
most part by the man whose income greatly ex- 
ceeds his current expenditures, and who is eager- 
ly seeking new avenues of investment. He it is 
who is the chief recipient of the benefits accruing 
to a purchaser in cases of forced sale. 

The particular direction taken by successive in- 
vestments during the period of fortune accumu- 
lation is likewise a matter of much importance. 
A judicious extension of investment interests 
may result in the creation or strengthening of car- 



FACTORS IN GAIN GETTING. 161 

tain monopolistic (non-personal) factors, which 
will prove a source of exceptional gain to the in- 
dividual. If Astor had carried on the fur trade 
as did so many others, without attempting to de- 
velop transportation and shipping facilities, the 
North American Fur Company could never have 
attained the strongly monopolistic position that 
it occupied in the middle west.^^ As it was, the 
monopoly once established, the chances of loss 
were reduced to a minimum, and full advantage 
could be taken of the favorable conditions inher- 
ent in the trade. 

So in the case of the Standard Oil Company, 
its monopolistic powers were strengthened, and 
big gains were derived from the development of 
the pipe-line system, in connection with the re- 
fining business. Indeed, as investment interests 
in general become more and more ramified, there 
ensues a diminution of the chances of individual 
loss, consequently, a greater possibility that non- 
personal factors will operate to individual ad- 
vantage. Hence the logic of that most liighly 
developed type of financiering, which combines 



lilt is not meant to minimize the ability displayed by Astor 
in recognizing the advantages to be derived from developing 
facilities for transport. But the question at this point is, given 
that development, what other factors entered to condition the 
size of the returns. The matter of personal ability will be later 
discussed. 



162 GREAT FORTUNES. 

interests so varied in character, that it sometimes 
seems as if it embraced the entire field of trade 
and transportation. The greater the extent of 
such heterogeneous investments, the less likely it 
is that monopoly gains within one field will be 
curtailed by conditions operative witliin other 
lines of activity. The whole range of interests 
can, in short, be managed as a unit to give the 
largest possible individual returns. 

As for the possibilities of speculative gain that 
arise with such an extension of holdings as has 
been effected during the last few years, they are 
incalculable. If Gould could send the stocks of 
the Erie and of several other roads up or down, 
as liis purpose required, by reason of the control 
he exercised witliin a relatively limited field, 
what may not the "Standard Oil" or the "Mor- 
gan" group accomplish? They can send gas, 
electric, steel, street railway, and numerous other 
stocks up or down, as the case may be. A simple 
pronouncement of policy may be all that is neces- 
sary to bring about a startling change in stock 
quotations. The resultant gains can hardly be 
attributed, therefore, to the foresight and skill in 
taking risks of the men who bring about these 
fluctuations. It is the absence of risk due to the 
sheer extent of their interests which enables them 
to profit, with the exercise of a minimum amount 



FACTORS IN GAIN GETTING. 163 

of prudence. To quote Henry Clews, when 
speaking of one of these groups of financiers: 
"Their resources are so vast that they need only 
to concentrate on any given property in order to 
do with it what they please. . . . There is an 
utter absence of chance that is terrible to contem- 
plate. This combination controls Wall Street 
almost absolutely. With such power and facil- 
ity, it is easily conceivable that these men must 
make enormous gains on either side of the mar- 
ket."^^ 

With the growth in size of a fortune, there 
generally occurs a change in the character of the 
personal activity of its owner. In fact, there is 
evidence of a continuous development of func- 
tional specialization on the part of the individual, 
which could not profitably have taken place at an 
earlier period. The fortune of John Jacob Astor 
serves to illustrate the process very distinctly. 
Astor was first seen wearily tramping the coun- 
try in search of furs, trading with the Indians, 
negotiating with the merchants — in short, en- 
gaged in a business wliich invoh^ed a high degree 
of genuinety exhausting labor. Moreover, every 
detail of the existing crude organization required 
his personal attention, while he had also to look 

isQuoted by Fetter in his Principles of Economics, p. 378. 



164 GBEAT FORTUNES. 

sharply to the financial matters of income and 
outgo. Eventually, the purely physical labors 
connected with the trade devolved upon subordi- 
nates. Astor assumed the position of head man- 
ager. He directed the men in the field, decided 
what territory should be covered, what goods 
should be furnished, and what prices should be 
offered. Not only did he thus order the general 
policy of his undertakings, but he financed them 
as well. Later, he transferred the more imme- 
diate control of the trade to trusted heads of de- 
partments, reserving to himself a certain large 
supervision, with a view to determining the na- 
ture and extent of his expenditures. Even Jay 
Gould can show a similar advance from the hard- 
ships endured as clerk in a small store, as sur- 
veyor, and as civil engineer, to the physically less 
arduous position of manager of a tanning busi- 
ness. Then came his graduation into the spec- 
ulative field. Henceforth, his activities were no 
longer directed to details of management. He 
was concerned with them only in so far as they af- 
fected the financial operations with which his time 
was fully occupied. The same stages of develop- 
ment were passed through by John D. Rocke- 
feller, and by any number of the wealthy finan- 
ciers of the present day, saving always those who 
started life already possessed of wealth. 



FACTORS IN GAIN GETTING, 165 

Indeed, it is inevitable that there should take 
place these changes in the forms of personal ac- 
tivity of men of great wealth. Even the most 
energetic person, possessed of twenty-five, fifty, 
or a hundred millions of dollars, finds his time 
fully employed in looking after the financial de- 
tails of management, in deciding when to invest 
in a new enterprise, when to withdraw from an 
old one, when to authorize fresh expenditures, 
when to retrench upon previous ones. Apart from 
the general supervision which such pecuniary in- 
terests entail, there is hkely to be no opportunity 
afforded him for any immediate tasks of manage- 
ment and control — such tasks, for instance, as re- 
quire expert technical knowledge, or ability to 
organize separate productive processes, or facil- 
ity in effecting purchases and sales of materials. 
There is, of course, even less reason to expect 
that any sort of manual labor or physical effort 
will be put forth by the man of great wealth, al- 
though, if he be a self-made millionaire, he may 
have labored arduously, while his fortune was in 
the making. 

From what has been said, it becomes evident 
that it would be quite useless to affirm or to deny 
that the personal element which figures in the 
process of fortune accumulation, becomes abso- 
lutely either greater or less with the growth in 



166 GREAT FORTUNES. 

size of the fortune. As a matter of fact, the forms 
of activity are different in kind, hence, non-com- 
mensurable as regards degree. Taking the per- 
sonal element for granted, therefore, all that can 
be ventured is the assertion that the non-personal 
factors conditioning the process of fortune accu- 
mulation attain an ever-increasing influence in 
affecting the size of the individual's gain. 

It is an imperfect recognition of this fact, 
which is translated into the unreflective criticism 
that the rich man cannot have "earned" the for- 
tune he has acquired. The implication is that he 
cannot possibly display an amount of individual 
activity or of personal ability as much greater as 
his reward is larger than that of other men. From 
what source, then, it is asked, can he have de- 
rived such unusual returns? It is not seen that 
they are due to all sorts of non-personal consid- 
erations, which must always be reckoned with, 
but which happen to have operated with peculiar 
force under the given conditions. Hence there is 
a disposition to attribute all such exceptional re- 
turns to undesirable institutions or to question- 
able practices of some sort. 

Even production on a large scale is frequently 
condemned as a thing evil in itself and not to be 
tolerated, simply because it usually presupposes 
a considerable degree of monopolistic (non-per- 



FACTORS IN GAIN GETTING. 167 

sonal) gain. Further, large-scale production is 
sometimes viewed with disfavor because, in so far 
as it has taken on a corporate form, it has facili- 
tated an extension of investment interests 
through stock and bond purchases, and a conse- 
quent control of the market situation, which en- 
ables certain men to obtain speculative profits al- 
most without risk of loss, and, it may be, with a 
minimum of effort. But to condemn large scale 
production itself, solely for such reasons, is to 
confuse the purely productive facts of industry 
with problems connected w^ith the social aspects 
of distribution. There is, at any rate, no similar 
confusion in the minds of those who question the 
right to the "unearned increment" arising from 
private ownersliip of land. They, at least, pro- 
pose to eflPect distributive changes (namely, the 
aboHtion of private property in land), as a rem- 
edy for what they regard as distributive evils, 
since they cannot, of course, inveigh against the 
existence of the land itself. 

The same failure to appreciate the actual facts 
of fortune-building, the same desire to find "ab- 
normal" causes of growth has led to bitter per- 
sonal abuse of men of large fortune. Why? 
Their business morahty is just as high, and fre- 
quently, no doubt, a little higher than that of the 
ordinary small town trader or money lender 



168 GREAT FORTUNES. 

(which is not saying that it in any way conforms 
to the standard which an extra-commercial and 
aroused public opinion would force upon them) . 
Why, it may be asked, have the petty shifts, the 
ruthless bargaining, the unrelenting rivalries of 
small producers and tradesmen been portrayed 
without the slightest personal animus having been 
manifested by the portrayer? Are the resultant 
gains any less abnormal than the supposed or ac- 
tual pilferings of the rich? Yet the parallelism 
is rarely insisted upon. Why? Because to the 
public at large, the gains of the lesser business 
men do not seem so out of proportion to their 
individual activity as to require explanation on 
the ground of illegitimacy. Consequently, there 
is seldom any attempt to scrutinize their meth- 
ods very closely, although their gains are as sure- 
ly leavened at times by fraud and sharp practice, 
as are those of the wealthiest men in the land. 
But when it comes to a consideration of the great 
fortunes, there is a sudden change of attitude. 
When it is seen that men such as Astor, Gould, 
Rockefeller, Morgan, and others, may, by judi- 
cious purchase and sale of certain rights of own- 
ership, add millions to the value of their proper- 
ties, criticism at once becomes rife. However 
great the ability displayed in effecting such trans- 
actions, it is felt to have no connection with the 



FACTORS IN GAIN GETTING. 169 

size of the return, and the cry of "unearned" is 
at once raised. Then an explanation of the un- 
usual gains of these men is sought for in their 
acts, rather than in the institutions and the situ- 
ations which condition their activity. Their en- 
tire careers are gone over with an eye to search- 
ing out iniquity. If it be discovered (and it usu- 
ally can be,^" since few business transactions sur- 
vive the test of non-commercial standards of 
conduct) it is then hastily inferred that dishon- 
esty affords in large part an explanation for ex- 
cessive wealth accumulations. In point of fact, 
the sharp practices of the average business man 
are just as dishonest and probably as widespread. 
Hence any sweeping condemnation of the man 
of great fortune on such ground involves both 
large and small. The result is an unconscious in- 
dictment of our whole system of business rela- 
tions. Whether justly or not is irrelevant to the 
present inquiry. 

isNotablv in the case of Gould. , 



CHAPTER VI. 

THE SOCIAL SERVICE RENDERED 

BY OWNERS OF GREAT 

FORTUNES. 

A DISCUSSION of the personal and non- 
'*• personal factors involved in the acquiring 

of large fortunes leaves on one side all specula- 
tion concerning the possible social services that 
may be rendered while those fortunes are being 
accumulated. That there exists a concept of so- 
cial service is indubitable, but it is questionable 
whether its content is the same for any two mem- 
bers of the same social group. For instance, a 
big industrial or trading corporation ministers 
to certain professed needs of large groups of 
people. A system of railroads stands as tangible 
evidence of service being rendered the commun- 
ity. But is there any way of measuring the posi- 
tive social value of those services ? For that mat- 
ter, do people agree as to their exact nature? Is 
it not necessarj^ moreover, to take into account 
the social costs incurred as the price of obtaining 
the positive services? Again, could more than a 
rude and uncertain approximation be had? 

How, for instance, judge of the degree of so- 
cial service rendered by the North American Fur 



SOCIAL SERVICE. ITl 

Company? Some persons would extol the bene- 
fits arising from the introduction into the world 
markets of the sldns so highly desired by civilized 
communities. Others would merely see the de- 
moralizing effects of the trade upon the Indians, 
and the unnecessarily rapid destruction of the 
fur-bearing animals of the continent. To take 
another illustration, even the worst managed 
railways, such, for example, as the Erie under 
the direction of Gould, serve the communities 
through which they run. But who can estimate 
the disorders and injuries which may at the same 
time result from improper or dishonest conduct 
of the affairs of such roads? Simply to suggest 
a third problem, how equate the services and dis- 
services to society resulting from the existence of 
the Standard Oil Company? Does not the deci- 
sion as to whether or not a "positive good" has 
resulted depend in such cases more upon the tem- 
perament of the judge than upon the evidence? 

The most that can be expected is a fairly gen- 
eral judgment that in specific cases the advan- 
tages derived by society from the existence of a 
particular institution have outweighed the at- 
tendant disadvantages. But does such an uncer- 
tain concept furnish a basis for a theory of re- 
ward proportioned to the degree of social ser- 
vice? Suppose that an exact quantitative esti- 

12 



172 GREAT FORTUNES. 

mate of a non-computable social service could 
be formed and could be attributed to some partic- 
ular business undertaking in which a fortune has 
been invested. Even then, it would not be pos- 
sible to say what part of the estimated social ser- 
vice ought to be accredited to the owner of the 
wealth so invested. If, as has been contended, 
non-personal factors play an important part in 
the making of great fortunes, then a part of the 
benefit derived by the community at large from 
the existence of a particular fortune would have 
to be attributed to those non-personal factors, 
rather than to the ability of the owner of the for- 
tune.^ 

It is sometimes said that a social service grows 
out of the existence of a fortune, in so far as that 
fortune represents capital employed in hiring la- 
borers. Once more, how estimate the extent of 
that service? If, for instance, the laborers are 
employed under conditions inimical to life and 
health, or even if they are no better off than they 
were before, it is difficult to decide whether such 
employment can in any way be figured as a gain 
to them or to the community. But granting fa- 
vorable conditions of work and a resultant gain, 
does the size of the fortune furnish even the 

lAs has been shown, there is no possibility of a sharp delimita- 
lion of the spheres of action of personal and non-personal factors. 



SOCIAL SERVICE. 173 

roughest indication of the degi'ee of social service 
growing out of the employment of labor? May 
not the small fortune, judged from such a point 
of view, be of much greater relative significance 
than the large fortune, since the latter usually 
represents a proportionately greater investment 
in purely acquisitive aids to gain-getting, such 
as franchises and special privileges of various 
sorts? What can be said for a great fortune 
made by land-speculations? By stock-gambling 
operations ? 

Not only is there no way of demonstrating any 
measurable connection between reward and social 
sei*vice, but it can be shown that the aggrandize- 
ment of the individual may take place without 
appreciable effect upon society, or, it may be, to 
its positive injury. So it is in the case of land in- 
vestments. The buyer of real estate may shift 
possession from one lot to another with great 
profit to himself, although he may not have 
sought during his term of possession to improve 
in the least the condition of such properties. It 
is an open question whether John Jacob Astor 
hindered the development of the community rath- 
er more than he advanced it by his purchases of 
real estate. To be sure, he made improvements 
upon certain lots either directly or through the 
agency of his tenants. But it is doubtful wheth- 



174 GREAT FORTUNES. 

er the hotels and other buildings erected might 
not have been placed there even sooner by others ; 
w^hether, given a change of ownership, land left 
unimproved might not have been ministering to 
definite public needs. In general, the case for 
withholding building lots from use is by no means 
clear. Because a piece of land may some day 
come into the heart of a business centre and be 
used as a site for a large office building, need by 
no means prevent its being employed to subserve 
certain present-day needs of the community. In- 
deed, so far as those present-day needs are legiti- 
mate, the owner who permits his land to remain 
unimproved performs a distinct social disser- 
Aace." 

Moreover, take the case of the financier, who 
has only a secondary interest in the actual work- 
ing arrangements of the organizations in which 
he has invested (and those working arrange- 
ments are, after all, the important thing for so- 
ciety). He is interested in them only in so far 



2The possession of land may mean something more than a 
simple, passive holding of it. for the sake of its future increase in 
value. Its owner may put it to some use which subserves a definite 
public need, or he may perform a social service by withholding it 
from use for a certain period. In the case of farm, forest, and 
mineral lands, those owners who refrain from utilizing their hold- 
ings frequently accomplish a great public benefit by retarding 
the tendency to a too hastv development of natural resources. 
But here again, how establish a connection between the gain that 
mav result to the individual and the value of the social service? 



SOCIAL SERVICE. 175 

as they affect the value of his share holdings, and 
it may conceivably be to his advantage so to de- 
moralize the mechanical organization as tempor- 
arily to depress the value of those shares. But 
apart from such questionable tactics, he may 
profit largely by judiciously shifting his invest- 
ments from one field to another, without appre- 
ciable effect upon the industrial situation. He 
merely takes advantage of existing conditions 
which make for gain. 

The evidence afforded by the fortune of Jay 
Gould excellently supports the contention that 
the amount of a man's gain bears no necessary re- 
lation to the degree of social service rendered, 
and, further, that such gain may even grow at 
the expense of the community.^ When Gould 
left the Erie Railroad, he was richer by millions, 
but the Erie itself was one degree worse off than 
when he allied himself with it. In so far as his 
gains were the result of illegitimate practice, this 
statement has no great significance for economic 
theory ; but in so far as they were obtained within 



3"It would be very difficult to show that the nation as a whole 
is a dollar richer by the existence of Jay Gould, while he himself 
has become the richer by an amount estimated as aforesaid from 
the expansion of the city and the nation. He has simply 
absorbed what would have been made in spite of him, and what, 
if he had not interfered, would have been possessed by somebody 
else." From an editorial in the New York Times, December 3, 
1892. 



176 GREAT FORTUNES. 

the limits of legal morality, such an assertion is of 
deep import. It means that the operator in 
stocks or other securities, by taking advantage 
of price fluctuations, may profit without the 
slightest reference to the material, technological, 
social facts of industry, or, it may be, as the re- 
sult of socially injurious changes. 

In his conduct of the Union Pacific, Gould cer- 
tainly effected some actual improvements. For 
one thing, he extended the branch line system — 
an admitted good. But did he do it as econom- 
ically, as prudently as might be? In point of 
fact, he seriously crippled the main line by some 
of the purchases made in his own interests. How- 
ever, it would probably be fair to say that in this 
respect, the advantages outweighed the disadvan- 
tages. And so it goes with all the roads with 
which he was connected. No doubt certain tangi- 
ble results were obtained, certain improvements 
made, but the question remains as to whether, 
under other auspices, those improvements might 
not have been a great deal more numerous, and 
effected with a much greater degree of economy. 
An answer to these queries may be conjectured, 
and it is not favorable to Gould. The fact that 
in nearly every instance these roads were bank- 
rupt when he took them, were rehabilitated by 
him, saddled with vastly increased obligations, 



SOCIAL SERVICE. 177 

and then allowed to lapse into bankruptcy once 
again — all this does not favor the supposition of 
economical and socially desirable management. 

Again, take the case of the American Union 
Telegraph Co., organized solely to levy blackmail 
on the Western Union. Gould accomplished his 
purpose of securing a combination of the two or- 
ganizations, but the advantages which he as an 
individual derived from his entry into the West- 
ern Union were obtained at a great social cost. 
Four hundred and twenty-nine offices of the 
American Union were closed following the con- 
solidation ; there had been a useless paralleling of 
lines; Gould's victory spelt waste. No doubt, 
once in control of the Western Union, his man- 
agement was just as good as that of his prede- 
cessors, since, happily, he believed in the Western 
Union as an investment concern, and was, there- 
fore, interested to maintain a high degree of 
working efficiency. 

What of the profits accruing to the "Standard 
Oil" and "Morgan" men as the result of the ex- 
tensive ramifications and interrelations of their 
property holdings? Do they always represent a 
social service? Or is it likely that technological 
or other considerations making for increased so- 
cial efficiency have been subordinated to a desire 
to secure the gains incident to a concentration of 



178 GREAT FORTUNES. 

control over a wide field of trade and industry? 
An illustration may be drawn from the case of 
the United States Steel Corporation. All its 
constituent companies re j) resented large combi- 
nations of capital, and were more or less industri- 
ally complete units in themselves. Viewed wholly 
from the industrial standpoint, therefore, the 
question might well have arisen as to whether a 
further unification might not prove so unwieldy 
as to offset any resultant economies. But to put 
all such considerations aside, the main purpose 
of the union was accomplished in that it prevent- 
ed a war of the large financial interests, bringing 
together as it did the Morgan, Moore, Rocke- 
feller, Carnegie, and Gates holdings. The North- 
ern Securities Company is another illuminating 
example of a corporation organized purely and 
simply to secure a unification of the investment 
interests concerned, and to enjoy the profits in- 
cident to harmonious action. 

The earlier combinations, such as those in steel, 
sugar, and petroleum, had come about in part, at 
least, as the result of industrial exigencies. At 
any rate, they certainly made for increased fa- 
ciUties of production within the limits of the in- 
dustries in question. But it is difficult to see how 
certain present-day combinations can have any 
effect upon methods, processes, and economies of 



SOCIAL SERVICE. 179 

production, although such combinations may be 
highly profitable to the individuals in control of 
them by extending the scope of their influence, 
and adding to the size of their monopolistic gains. 
It has been shown that there is no way of es- 
tablishing a determinate relation between reward 
and personal ability, or reward and social service. 
What, then, can be said of the attempts of cer- 
tain economists to combine the two ideas and to 
prove that "profits are the share or income of the 
entrepreneur for his skill in directing industry 
and in assuming the risks" and that "despite the 
complex influences they are determined by his 
contribution to industry, essentially as is the 
value of any skilled service."'' Is this any more 
than a dogmatic assertion, which is frequently 

4Are the rewards of the successful enterpriser greater than he 
deserves? How shall it be judged what he deserves? Tlie answer 
is in the form of a question, "Could society have the service with- 
out the reward?" Society may be thought of as hiring the servid'es 
of the efficient business man at the lowest price. Does it wish the 
services of Cornelius Vanderbilt in organizing a great system of 
railroads, of Andrew Carnegie, of Pierpont Morgan? What can 
it get them for? It must appeal not only to their love of money 
but to their love of power. lyarge services and lai'ge results can 
be bought only with large rewards." 

Fetter, Principles of Economics, p. 377. 

Would it be correct to infer from this that if the rewards of 
these men had been less, they would have done less? Isn't it mis- 
leading to speak of "hiring" the services of these men, just as if 
the si/e of their returns were predestined, and could find expres- 
sion in a stable contractual relation? Even suppose it were 
necessary to guarantee them a fixed amount, would it be very 
illuminating to say that they deserve what they get because they 
insist upon having it? 



180 GREAT FORTUNES. 

contradicted by the facts. Professor Fetter him- 
self, as a preliminary to the statements just quot- 
ed, discusses "anti-social or pseudo" profits, 
"chance" profits, and profits "due to a union of 
chance and choice."^ He even says that "it still 
sometimes appears better to be born lucky than 
rich." Yet he concludes that "continuing profits 
arise from the continued exercise of superior 
judgment." Are, then, these chance elements so 
transient, unimportant, and "abnormal," that a 
valid theory of distribution can disregard them? 
What, moreover, is the significance of the fol- 
lowing statement, which, curiously enough, ap- 
pears under the general caption that "incomes 
from legitimate enterprise and speculation corre- 
spond roughly to social service"? Professor Fet- 
ter admits that "in many ways fortunes appear to 
grow without social service, and sometimes with 
positive social harm." Russell Sage, the noted 
capitalist (who should know something of Wall 
Street), in speaking of the greatest of American 
corporations, said: "They dominate wherever they 
choose to go. They can make and unmake any 
property, no matter how vast. They can almost 
compel any man to sell out anything, at any 
price." Henry Clews, the well-known New York 

»Fetter, Principles of Economics, pp. 289, 290. 



SOCIAL SERVICE. 181 

banker, said of a certain group of financiers: 
"Their resources are so vast that they need only to 
concentrate on any given property in order to do 
with it what they please. . . . There is an 
utter absence of chance that is terrible to contem- 
plate. This combination controls Wall Street 
almost absolutely. With such power and facili- 
ties it is easily conceivable that these men must 
make enormous sums on either side of the mar- 
ket."^ Again, can a theory dismiss as an excep- 
tion so salient a fact of our industrial develop- 
ment? Isn't the whole movement toward an ex- 
tension of investment interests designed to mini- 
mize and to neutralize risk? It really seems as 
if risks of loss diminished with the growth in size 
of a man's income. Far from profits being due 
to superior skill in taking risks, profits usually in- 
crease as in the course of the general process of 
fortune development, there are fewer risks left 
to be assumed. 

Professor Carver, in his book on the "Distribu- 
tion of Wealth," has a category of profits, which 
he does not impute to the productivity of land, la- 
bor, or capital, but he gets it by confessing that 
his theory does not always hold in practice. The 
amounts paid for the hire of the several agents of 

oFettcr, Principles of Economics, pp. 377, 378. 



182 GREAT FORTUNES. 

production are only "approximately" equal to 
their marginal products. "Of course, the owners 
of these factors of production will not knowingly 
take less than their marginal products, because 
that is what they are really worth. . . . But it 
is never known precisely what their marginal 
products are at any given time."^ Profit is, then, 
resolved into the reward of risk-taldng (wliich in 
Professor Carver's theory belongs logically under 
the head of wages) and the reward of superior 
bargaining. However, the share resulting from 
the business man's superior bargaining power 
produces nothing. In fact, a reward thus obtained 
has about it a suspicion of illegitimacy. It is a 
species of robbery, which, under more nearly ideal 
conditions, tends to disappear. "^ Thus Professor 
Carver is practically left with personal ability de- 
termining the value of a man's contribution to so- 
ciety (his social service) , and hence the amount of 
his reward. But, he says, the amount which he can 
add to the social product is, on the principle of 



TCarver, The Distribution of Wealth, Chap. VII, p. 260. 

8 J. B. Clark, Distribution of Wealth, Chap. XIX, p. 290, says: 
"Profit is the universal lure that makes the competition work and 
the ultimate goal of the whole movement is a no profit state." 
In other words, there is no room for a discussion of exceptional 
returns due to luck or chance in Professor Clark's producti\ity 
theory of distribution. Such returns must be reckoned transient 
or illegitimate, whenever they cannot be forced into the category 
of "regular" rewards assignable to the protluctivity of specific 
factors or agents. 



SOCIAL SERVICE. 188 

marginal productivity, decreased as the number 
of business managers increases. That is, the 
man's actual ability is unchanged, his material 
contribution is unaltered, but his marginal (val- 
ue) productivity, hence the size of his revrard, is 
less. What, in reality, is this statement but a 
confession that rewards are not made solely on 
the "absolute" grounds of personal abiHty and 
social service, but are conditioned by various non- 
calculable circumstances? 

Many economists who attempt to explain per- 
sonal gain on the basis of ability, of social ser- 
vice, or of ability and social service in conjunc- 
tion, either specifically state or else strongly im- 
ply that their theories furnish a justification of 
such gains. Suppose, however, that any one or 
all of these propositions could be established. 
Wherein would lie the "justification" of the ex- 
istence of gains? The proof would have an eth- 
ical validitjT^ only in so far as it coincided with 
one's metaphysical predilections. Assume, for 
instance, that a man's ability was so great that 
none could compete with him, or that he per- 
formed an incalculably valuable social service. 
Would he be "justified" in engrossing the earth? 
Would society, in either case, meekly allow all its 
possessions to remain at his disposal? Certainly 
not; it would feel under no metaphysical compul- 



184. GREAT FORTUNES. 

sion to permit such a consummation, and it 
would, if need were, find means to prev^ent it. 

To talk, then, of justifying the winnings of 
the man of great fortune is idle. He stands or 
falls, as tliis or that view of social expediency pre- 
vails. At present, the general belief seems to be, 
that, under the existing economic system, social 
needs are fairly well met, and the majoritj'^ of the 
people receive a reward just about sufficient to 
make them exert their full powers toward the 
satisfaction of those needs. It is further assumed 
that this approximation to the socially desirable 
can only be secured by permitting a high degree 
of liberty of action and freedom of acquisition to 
all members of the social group. If, however, 
certain men or groups of men, while operating 
witliin the existing legal hmitations, should suc- 
ceed in securing a large share of the property of 
the community with all the attendant influence 
that ownership implies, opinion regarding the so- 
cially desirable nature of present economic ar- 
rangements might undergo a transformation. If 
such cases became sufficiently numerous and in- 
sistent, there might arise a demand for regula- 
tive changes. It would then be for the commun- 
ity to decide upon the necessity, scope, and char- 
acter of the proposed new measures. And its de- 
cibion sliould properly be made on the broad ba- 



SOCIAL SERVICE. 185 

sis of public policy. On siicH srrouncl, purely eco- 
nomic facts and the preconceptions of economic 
science will secure recognition, to be sure, but 
only to the extent that they have a direct bear- 
ing upon the wider question of the general pubUc 
welfare. 



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